The accounting results are prepared based on fundamental accounting concepts and principles. The accrual concept of the accounting is the fundamental accounting concept basis used for preparation and presentation of financial statements. As per accrual concept the revenues and expenses should be accounted based on when it is earned and incurred respectively. The receipt and payment of cash is not relevant for preparation of income statement. For example: expenses are recognised as and when incurred. Salaries and wages expense not paid at the end of the period are accrued even though the same is paid in next period.

Preparation of financial statements in line with GAAP accounting or accrual accounting gives a true and fair view of the business results. It is also in line with going concern assumption that the entity will continue for a foreseeable future and there is no intention to wind up the entity.