Accruals concept

A basic idea on which company accounts are based: that cause and effect should be linked by matching the costs which are incurred in running a business with the resultant revenue earned (although not necessarily received in cash) in the same accounting period. The alternative would be to have a system of cataloging the cash transactions of a business and calling the net result profit or loss. But in any one year this would be likely to distort the picture of the company's performance since many cash costs would be incurred, or income received, in respect of pieces of work that span more than one accounting year.