Accounting concepts, Financial Accounting

Accounting concepts

The word 'Accounting Concept' is used to denote necessary assumptions and ideas which are basic to accounting practice. The variety of accounting concepts is like this:

  • Business Entity concept: For accounting reason, the owner of an enterprise is constantly considered to be separate and distinct from the business which he/she controls
  • Dual aspect concept: each business transaction engage two aspects - a receipt and a payment. That is, each debit has an equal and corresponding credit. The dual facet idea is expressed as: Capital + Liabilities = Assets. This is identified as 'the accounting equation'.
  • Going concern concept: Under this statement, the enterprise is usually viewed as a going concern. It is unspecified that the enterprise has neither the intention nor the necessity of liquidation of curtailing materially the level of its operations. That is why possessions are valued on the source of going concern concept and are depreciated on the basis of expected life sooner than on the basis of market value.
  • Accounting period concept: 'Accounting year' is the era of 12 months for which accounts are to be equipped under the Companies Act and Banking Regulation Act.
  • Money measurement concept: In accounting, each event or transaction which can be articulated in terms of money is recorded in the books of accounts.

This idea does not trace any fact or happening, however significant it is to the business, in the books of accounts if it cannot be spoken in terms of money. And as per this idea, a transaction is recorded at its money worth on the date of occurrence and the following changes in the money value are suitably unnoticed.

  • Historical Cost concept: The fundamental idea of cost concept is - i) asset is recorded at the price paid to obtain it, that is, at cost and ii) this cost is the base for all following accounting for the asset. Fixed assets are exposed in the books of accounts at cost less depreciation. Current assets are from time to time valued at cost price or market price, either is less.
  • Revenue recognition concept: In accounting, 'revenue' is the gross inflow of cash, receivables or other reflections arising in the track of an enterprise from the sale of goods, from the representation of services and from the holding of possessions. In the case of profits, the key question is at what stage the transaction should be recorded and recognized.
  • Periodic matching of cost and revenue concept : After the revenue appreciation, all costs incurred in earning that revenue should be charged beside that revenue in order to establish the net income of the business.
  • Verifiable objective evidence concept: as said by this idea, all accounting have to be based on objective proof. i.e., the transactions should be supported by confirmable documents.
  • Accrual concept: beneath this idea, revenue recognition and costs for the applicable period depend on their realization and not on definite receipt or payment. In relation to revenue, the accounts should keep out amounts relating to subsequent period and offer for revenue recognized, but not received in cash. likewise, in relation to costs, offer for costs incurred but not paid and prohibit costs paid for succeeding period.
Posted Date: 10/15/2012 5:15:09 AM | Location : United States







Related Discussions:- Accounting concepts, Assignment Help, Ask Question on Accounting concepts, Get Answer, Expert's Help, Accounting concepts Discussions

Write discussion on Accounting concepts
Your posts are moderated
Related Questions
Time tickets for factory employees during the month of August are summarized as follows. Prepare a journal entry to record the total factory payroll, the indirect payroll and the d

PCAOB - Public Corporation Accounting Oversight Board, a private-sector, non-profit corporation created by Sarbanes-Oxley Act of 2002, to oversee AUDITORs of public companies in or

Go to your assigned corporation's website and access their latest annual report. Answer the following questions regarding their derivative and foreign currency transactions. 1.

As a borrower, which of the following two 30 year, monthly payment loans would you choose (and why) if you had a 10 year expected payment horizon: 5% interest rate with 3.5 points,

INCOME ACCOUNT (a) Classification : Income will be classified under appropriate headings: Rents; Interest on Government securities; Dividends; Interest on

PROTECTION OF PROPERTY OF A DECEASED PERSON (a) No person may take possession of or dispose of or otherwise intermeddle with, any free property of a deceased person, unless he

In this type of system store balances are recorded and computed after all receipt and issue. The main focus of this system is to make obtainable details regarding the quantity and

Calculate  Stock turnover rate The total average number of times each year which stocks is "turned over" in the terms and course of trading activity. Stock turnover rate

The net present value has been computed for Proposals A and B. proposal A proposal B invested amount 75000 125000 total present value of cash 84000 136250 net present value 9000 11

Illustration of change in profit sharing ratio A, B and C have been trading as equal partners having capital contributions of £400,000, £300,000 and £200,000 respectively. They