CONCEPTS OF ACCOUNTING

CONCEPTS OF ACCOUNTING

These are the basic assumptions or rules to be followed while recording and presenting accounting information.

1. Business Entity Concept: This concept explains that the business is distinct from the proprietor. Thus, the transactions of business only are to be recorded in the books of business.

2. Duality Concept: According to this concept every transaction has two aspects i.e. the benefit receiving aspect and benefit giving aspect. These two aspects are to be recorded in the books of accounts.

3. Money Measurement Concept: According to this concept only those transactions which are expressed in money terms are to be recorded in accounting books.

4. Going Concern Concept: This concept assumes that the business has a perpetual succession or continued existence.

5. Realisation Concept: This concept speaks about recording of only those transactions which are actually realised. For example Sale or Profit on sales will be taken into account only when money is realised i.e. either cash is received or legal ownership is transferred.

6. Matching Concept: It is referred to as matching of expenses against incomes. It means that all incomes and expenses relating to the financial period to which the accounts relate should be taken in to account without regard to the date of receipts or payment.

7. Consistency Concept: This Concept says that the Accounting practices should not change or must remain unchanged over a period of several years.

8. Prudence Concept: According to this concept all the losses incurred or expected to be incurred are to be taken in to account but not all anticipated profits to be taken into consideration while finding the profit. Similarly while finding the value of closing stock, least of the two values i.e. Market price or Cost price is to be taken into account.
“Lower of the cost or net realisable value”.