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Accounting Concepts and principle
Let’s learn about accounting concepts and principle
1. Money Measurement Concept: Every event and transaction before being recorded must be expressed in terms of money.
2. Cost Concept: Every transaction is recorded in the book of accounts at the cost price. Every transaction is recorded with the present value and not the future value.
3. Dual-Aspect Concept: Every transaction has two opposite aspects of an equal amount expressed in terms of Dr(Debit) Cr(Credit).
4. Separate-entity Concept: This concept separates the entity of the business and the proprietor of the business as far as accounting is concerned. All the records are maintained from the viewpoint of the business rather than the owner. The distinction can be maintained in case of limited company as it has a legal entity of its own. However, it is difficult to differentiate in the case of partnership and more so in case of sole-proprietorship.
5. Realization Concept: Any item of payment or receipt shall not be considered as an expense or income unless such payment or receipt falls due. It is treated as realized on the date when the goods reach the buyer after which he is legally liable to pay. Note that no future income is considered and goods sold on approval will not be included in sales but will be taken at cost only.
6. Matching Concept: Every item of income should be matched with the expenses incurred during that period in order to determine the profit or loss of the concern. It gives a close relationship between certain expired cost and revenue realized as a result of incurring that cost. According to this concept, adjustments should be made for all outstanding expenses, accrued income, un-expired expenses, etc. while preparing the final accounts at the end of the accounting period.
7. Periodicity Concept: Under this concept, only those transactions falling within the current accounting period shall be recorded in the books.
