Drew | Business Concepts

Accrued vs. Perceived

Written by Drew's editorial team | Jun 23, 2023 9:54:49 PM

Accrual and perceived basis are two criteria used for income and expenses in financial management. Accrual basis refers to a right or obligation that has been incurred but not yet received or paid. The accrual principle states that income or expenses arise at the time the commitment is dated, without considering the actual cash disbursement.

On the other hand, the term perceived basis refers to the recognition of all income and expenses at the economic event in which the actual transfer of money takes place.

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Accrual:

The term "accrual" etymologically originates from the Latin word "devengar," which translates to "appropriation" in Spanish. Therefore, it refers to any expense or income that runs from the commitment stage, considering it as an increase (or decrease) in assets from that moment. Thus, an accrual represents a right earned but not yet received or an obligation to fulfill that has not yet been paid.

This principle serves in the world of finance to allocate expenses and income temporally, in order to obtain accurate data regarding the perceived basis. This means that income and expenses are only recognized once the money has been received or disbursed, respectively, regardless of when the goods or services were provided.

Examples where the accrual system is applied include when paying public services such as electricity or gas since the expense is associated with the moment it was agreed upon and not when the invoice was issued. In other words, the expense has already occurred but has not been paid yet.

 

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Perceived:

When referring to the perceived basis method, it means focusing on perceived movements without considering the timing of the economic events to which they refer.

This method is often used for projections that account for surpluses or shortages of funds. When using the perceived basis system, it is indicated that, as the word suggests, money is "received" at the moment it is received and becomes available for use.

Therefore, the perceived basis indicates that the recording of an economic transaction is made at the time the money is received, i.e., when the payment is available for use.

An example of the perceived basis system is rental payments, where the exact number of months the tenant occupied the property is recorded.

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What is the major difference between the two?

When applying the accrual basis criterion, both positive and negative results are determined to be allocated in the period of economic impact. In contrast, the perceived basis criterion takes into account the period in which the payment or collection is credited.

The significant difference between the two concepts lies in perceived movements. Furthermore, the distinction between accrual and perceived basis lies in their application for different types of analysis within organizations, as it distinguishes between economic and financial aspects.

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Why is it important to differentiate them?

Understanding the differences between these concepts is important as they represent different perspectives in administrative management, and it is necessary to be aware of them in order to achieve effective accounting balance. Differentiating between the accrual and perceived basis criteria provides greater clarity in accounts receivable, organizational and business planning, as well as better resource control.

Generally, the accrual basis criterion stands out for its practicality. It allows for advance accounting movements and facilitates long-term budget planning.