Accounting principles are commonly associated with the theory and procedures of accounting which aredeveloped from common experiences, statements by professional and individual bodies, regulations ofgovernment agencies etc. An accountant needs to go through these principles for sound accounting practicesand procedures in reporting the financial status and the performance of the firm over a period of time
Concepts of Accounting
-Money-measurement Concept: Every event or transaction before being recorded must be expressed in terms of money. All the transactions are recorded in the money form using conversions, for instance salary, wages, production of goods etc.
-Cost Concept : Every transaction is recorded in the book of accounts at the cost price. For example machinery is recorded in the books by the amount paid by the supplier plus the expenses incurred on carrying and installation of machinery. Every transaction is recorded with the present value and not the future value and an item that has no cost is not recorded in the books. But note that all the assets recorded in the books of accounts does not always remain at the original price for all time to come, it is systematically reduced by the process of depreciation.
-Dual-aspect Concept: Every transaction has two opposite aspects of equal amount expressed in terms of Dr (Debit) &Cr (Credit).
-Separate-entity Concept: This concept separates the entity of the business and proprietor of the business as far as accounting is concerned. All the records are maintained from the view point 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 case of partnership and more so in case of sole-proprietorship. Thus any money withdrawn by the owner is treated asadrawing.
-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.
Matching Concept: Every item of income should be matched with the expenses incurred during that period in order to determine 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 incomes, un-expired expenses etc. while preparing the final accounts at the end of the accounting period.
-Periodicity concept: Under this concept only those transactions falling within the current accounting period shall be recorded in the books.
