BIM31031 - Tax and accountancy: accruals and prudence

The main points arising out of the concepts of accruals and prudence are that:

• receipts are recognised as they are earned;
• expenses incurred to earn those receipts should be recognised at the same time as the receipts - that is they are `matched' - provided the link between them can be established or justifiably assumed;
• nevertheless, receipts cannot in any event be recognised before the point when their ultimate realisation as cash can be assessed with reasonable certainty, for example at the point when a debt is created. (This `realisation' principle is part of the accountancy concept of prudence, which took precedence over the other accountancy concepts under SSAP2).