Income and expenses are recognised when earned or incurred respectively rather than when a cash inflow or outflow occurs. At the other extreme is the cash accounting framework which recognises the implications of financial transactions in the period of the cash inflow or outflow.

The Companies Act requires incorporated companies to comply with GAAP or accounting standards in their statutory accounts. By complying with accounting standards in preparation of accounts the company would be by default be applying accrual accounting. Below are some of the consequences of accrual accounting:

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