Important concepts of accounting

1. CONCEPTS OF
ACCOUNTING

2. INTRODUCTION
 Accounting concepts are general guidelines that all
accountants should know and follow when recording
business transactions and preparing financial
accounts.
 The purpose of accounting concepts is to make
accounting uniform, objective, consistent and
understandable.

3. Important Accounting Concepts
1. Accounting Entity Concepts
2. Money Measurement Concepts
3. Going Concerns Concepts
4. Cost Concepts
5. Dual Aspect Concepts
6. Accounting Period Concepts
7. Matching Concepts

4. ACCOUNTING ENTITY
CONCEPTS
A business is treated as a separate entity distinct from its
owner. Therefore business transactions must be kept
completely separate from the private affairs of the
proprietor.
The transactions in a business are always recorded from
the point of view of the business.

5. Significance of Accounting Entity
Concepts
 It helps in ascertaining the profit of the business.
 It is the basis of accounting principles.

6. MONEY MEASUREMENT
CONCEPTS
According to this concept, only those transactions which
can be measured in terms of money are to be
recorded.
Any event or transaction which cannot be expressed in
terms of money is not recorded in the books of
accounts.

7. Significance of Money
Measurements Concepts
 It helps in recording business transactions uniforms.
 It is easy to understand the accounts prepared by the
business enterprise.

8. GOING CONCERN CONCEPTS
As per this concepts the business units is assumed to
have an indefinite life. It is deemed that there is no
intention or necessity to wind up the business activity
in the immediate future.
Hence the firm is treated as a continuing one for long.

9. COST CONCEPTS
All assets are recorded in the books of accounts at their
purchase price, which include cost of acquisition,
transportation and installation and not at its market
price.
It means that fixed assets like building, plant and
machinery, furniture etc. are recorded in the books of
accounts at a price paid for them.

10. This concepts assumes that every
transaction has a dual effect. Therefore the
transaction should be recorded at two
places.
It means both the aspects of the transactions
must be recorded in the books of accounts.

11. ACCOUNTIN PERIOD CONCEPTS
Accounting period is obtained as the interval of time at
which P&L and B/S are prepaid.
This accounting period may be also be of shorter or
longer duration than one year.

12. MATCHING CONCEPTS
When revenue is realized on goods sold during a period,
all costs attributes to those goods should be charged as
expenses to that very period.
Revenue and the relevant expenses should be correlated
and matched.

13. The essence of this concepts is that the revenues
and expenses shown in the P&L A/c must belong
to the same accounting period for which profit or
loss is being ascertained.
Adjustments have to be made for prepaid
expenses, outstanding expenses, unearned
income and accrued income.

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