What is Accrual Principle?
The accrual principle is the accounting rule that revenues and expenses must be recognized in the period in which they are earned or incurred, regardless of when cash is received or paid.
How It Works
- Recognize revenue when earned, not when cash is received.
- Recognize expense when incurred, not when cash is paid.
- Use adjusting entries at period-end to capture accruals and deferrals.
Saudi Context
ZATCA and SOCPA require accrual accounting for all but the smallest businesses in Saudi Arabia. Cash-basis accounting is generally not acceptable for VAT or corporate-tax filings.
Example
A Saudi consultancy delivers a SAR 100,000 engagement in December but invoices in January. Under accrual, revenue is booked in December.