Accounting Concepts
1. Separate Entity Concept
Every business is a separate entity from the proprietor. Business and owners are distinct.
2. Dual aspect Concept: Every business
Every business transation has two aspects – Debit. For example “Cash Received from Mr. Samtha Rs. 5000” has two aspects “Cash” – Real account and “Mr.Samtha” – Personal Account.
3. Going Concern Concept
It is assumed that the business will exist for an indefinite period of time and transactions are recorded from this point of view.
4. Money Measurement Concept
Those transactions and events are recorded in accounting only when they can be expressed in terms of money. Accounting records only financial character of the business
5. Cost Concept
All transactions are to be recorded in the books of accounts at their Cost Price when purchased, not on Market Price.
6. Matching Concept
At the end of the financial year all costs (expenses) of the organisation are to be matched against the revenues of the organization of the current year. Increments made by the business during a period can be measured only when the revenue earned during a period is compared with the expenses incurred for earning that revenue.
7. Accounting Period Concept
Uniformity in accounting period should be maintained in order to provide for intra firm comparison. Performance of one year can be compared with other only when uniformity in accounting period is maintained.
8. Accrual concept / Realisation Concept.
Transaction should be recorded on due basis. Expenses / Incomes are recognised and recorded on accrual basis. Actual receipt/payment is irrelevant for recognizing income/expense.
Accounting Conventions
1. Materiality
An accountant should disclose all the material facts and should ignore insignificant details. Accounting records should consist only of such events as are significant from the point of view of income determination.
2. Consistency
Accounting procedures or practices should remain the same(consistent) from one year to another.
3. Conservatism
An accountant should be conservative and prudent. Profits are not to be expected and provision should be made to encounter losses. Valuing stock at Cost Price or Market Price whichever is lower, and creating provision for doubtful debts are the examples of applications of the principle of conservatism.
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1. Separate Entity Concept
Every business is a separate entity from the proprietor. Business and owners are distinct.
2. Dual aspect Concept: Every business
Every business transation has two aspects – Debit. For example “Cash Received from Mr. Samtha Rs. 5000” has two aspects “Cash” – Real account and “Mr.Samtha” – Personal Account.
3. Going Concern Concept
It is assumed that the business will exist for an indefinite period of time and transactions are recorded from this point of view.
4. Money Measurement Concept
Those transactions and events are recorded in accounting only when they can be expressed in terms of money. Accounting records only financial character of the business
5. Cost Concept
All transactions are to be recorded in the books of accounts at their Cost Price when purchased, not on Market Price.
6. Matching Concept
At the end of the financial year all costs (expenses) of the organisation are to be matched against the revenues of the organization of the current year. Increments made by the business during a period can be measured only when the revenue earned during a period is compared with the expenses incurred for earning that revenue.
7. Accounting Period Concept
Uniformity in accounting period should be maintained in order to provide for intra firm comparison. Performance of one year can be compared with other only when uniformity in accounting period is maintained.
8. Accrual concept / Realisation Concept.
Transaction should be recorded on due basis. Expenses / Incomes are recognised and recorded on accrual basis. Actual receipt/payment is irrelevant for recognizing income/expense.
Accounting Conventions
1. Materiality
An accountant should disclose all the material facts and should ignore insignificant details. Accounting records should consist only of such events as are significant from the point of view of income determination.
2. Consistency
Accounting procedures or practices should remain the same(consistent) from one year to another.
3. Conservatism
An accountant should be conservative and prudent. Profits are not to be expected and provision should be made to encounter losses. Valuing stock at Cost Price or Market Price whichever is lower, and creating provision for doubtful debts are the examples of applications of the principle of conservatism.
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