ACCOUNTING CONCEPTS 2: ACCRUALS

The earnings of a business (corporation and small business) or of an individual or household (personal finance) are the difference between the revenues and expenses during an accounting period.

The difference between cash receipts and cash disbursements cannot be considered as earnings.

The revenues should include not only the cash received during the period, but also the income earned but not yet received (as in sales on credit). In the same manner, expenses during a period include not only the cash paid out, but also the expenses already incurred although not yet paid for (as in supplies bought on credit).