When interest on a partner’s loan becomes due before it is paid, on the basis of which accounting concept is it recognised?

Correct answer: Accrual concept

Under the accrual concept, income and expenses are recognised when they are earned or become due, not merely when cash is received or paid. Therefore, interest on a partner’s loan is recorded as an expense and liability as soon as it accrues, even if it remains unpaid. The matching concept deals with associating expenses with related revenue, while prudence and consistency address different accounting principles. Exam tip: recognition on becoming due, rather than on payment, indicates the accrual concept.