It is used to denote accounting assumption and notions which are widely accepted and fundamental to the science of accounting. The important accounting concepts are.
A. Business entity concept
While recording the transaction in the books of accounts, it should be noted that business and owners are separate distinct entities in the eyes of accounting. All transactions of the business are recorded in the books of accounting from the point of view of the business and not from the point of view of the owners.
B. Money measurement
According to this concepts, only those monetary transactions,which are capable of being expressed in terms of money are included in the accounting records, in other words the information which can not be expressed in terms of money is not included in Accounting records.
C. Cost concept
According to this concept, the transactions are recorded at cist in the books of accounts, for example if building is purchased for Rs80,000/-, but its market value is Rs 1,00,000/-, it is to be recorded at Rs 80,000/-,only because the actual expenditure incurred is Rs 80,000/- not to be recorded at market value of Rs 10,00,000/-.
D. Going concern concept
This concept assumes that business will continue to exist for fairly long period of time. It presumes the life of the business to be perpetual and there is no intention to liquidate business in the foreseeable future.
E. Accounting period concepts
The life of the business is considered to be indefinite, but the measurement of income can not be postponed for a very long period of time. Therefore, it is necessary to have a period for which the operational results are assessed for external reporting. Hence a period of one year I.e.e twelve months is considered as accounting period.
F. Dual aspect concept
This is one of the most fundamental concepts of accounting. It may be be stated that every debit there is a corresponding credit. Every business transaction has a dual effect. One us receiving aspect and the other is giving aspect. Therefore, for every debit there is an equal corresponding credit.
Eg. Machine purchased for Rs 25,000. In this transaction, business is receiving machine and that increase the balance of machine account by Rs 25,000 and at the same time it reduces the balance of cash by Rs 25,000. Hence the value received is equal to the value given.
G. Accrual concept
This concept implied that revenue is recognized in the period in which it is earned irrespective on the fact whether it is received or not during that period
Eg. Commission Rs2,000 earned in the year 2008,but received in cash in the year 2009, then the commission is to be taken as income for the year2008 only, not as income of the year2009.
H. Realization concept
According to this concept, the revenue should be considered only when it is realized. Any business transaction should be recorded only after it actually taken place, production of goods does not mean that the total production is sold, it should be recorded only when they are sold and cash realized or obligation created.
A. Business entity concept
While recording the transaction in the books of accounts, it should be noted that business and owners are separate distinct entities in the eyes of accounting. All transactions of the business are recorded in the books of accounting from the point of view of the business and not from the point of view of the owners.
B. Money measurement
According to this concepts, only those monetary transactions,which are capable of being expressed in terms of money are included in the accounting records, in other words the information which can not be expressed in terms of money is not included in Accounting records.
C. Cost concept
According to this concept, the transactions are recorded at cist in the books of accounts, for example if building is purchased for Rs80,000/-, but its market value is Rs 1,00,000/-, it is to be recorded at Rs 80,000/-,only because the actual expenditure incurred is Rs 80,000/- not to be recorded at market value of Rs 10,00,000/-.
D. Going concern concept
This concept assumes that business will continue to exist for fairly long period of time. It presumes the life of the business to be perpetual and there is no intention to liquidate business in the foreseeable future.
E. Accounting period concepts
The life of the business is considered to be indefinite, but the measurement of income can not be postponed for a very long period of time. Therefore, it is necessary to have a period for which the operational results are assessed for external reporting. Hence a period of one year I.e.e twelve months is considered as accounting period.
F. Dual aspect concept
This is one of the most fundamental concepts of accounting. It may be be stated that every debit there is a corresponding credit. Every business transaction has a dual effect. One us receiving aspect and the other is giving aspect. Therefore, for every debit there is an equal corresponding credit.
Eg. Machine purchased for Rs 25,000. In this transaction, business is receiving machine and that increase the balance of machine account by Rs 25,000 and at the same time it reduces the balance of cash by Rs 25,000. Hence the value received is equal to the value given.
G. Accrual concept
This concept implied that revenue is recognized in the period in which it is earned irrespective on the fact whether it is received or not during that period
Eg. Commission Rs2,000 earned in the year 2008,but received in cash in the year 2009, then the commission is to be taken as income for the year2008 only, not as income of the year2009.
H. Realization concept
According to this concept, the revenue should be considered only when it is realized. Any business transaction should be recorded only after it actually taken place, production of goods does not mean that the total production is sold, it should be recorded only when they are sold and cash realized or obligation created.
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