Accounting Concepts

1. Separate entity concept

2. Going concern concept
3. Money measurement concept
4. Cost concept
5. Dual aspect concept
6. Accounting period
7. Periodic matching of costs and revenue concept
8. Realization concept
1.Separate entity concept
• Business is a separate entity from proprietors.
• Business and personal transactions of its
owner are separate.
• Helps in ascertaining the profit.
2.Going concern concept
• Business firm will continue to carry on its
activities for an indefinite period of time.
• Facilitates preparation of financial statements.
• Depreciation is charged on the fixed asset.
• Great help to the investors.
3.Money measurement concept
• All business transactions must be in terms of
money.
• Transactions which can be expressed in terms of
money are recorded in the books of accounts.
• Sincerity, loyalty, honesty of employees are not
recorded.
• Helps in recording business transactions
uniformly.
4.Cost concept
• All assets are recorded at their purchase price.
• Helps in calculating depreciation on fixed
assets.
• Goodwill appears in the accounts.
5.Dual aspect concept
• Every transaction has a dual effect, i.e. it affects two
accounts.
• For every debit, there is an equivalent credit.
• The transaction should be recorded at two places.
• Commonly expressed in terms of fundamental
accounting equation :
Assets = Liabilities + Capital
• Every transaction has an equal impact on assets and
liabilities.
6.Accounting period concept
• Indefinite life of business is divided into parts. These
parts are known as Accounting Period.
• It may be of one year, six months, three months, one
month, etc.
• Usually one year is taken as one accounting period
which may be a calendar year or a financial year.
• Helps in predicting the future prospects of the business.
• Helps in calculating tax on business income, calculated
for a particular time period.
7. Periodic matching of costs and
revenue concept
• Based on accounting period concept.
• The revenue and the expenses incurred must
belong to the same accounting period.
• Ascertain profit or loss for that year.
• Helpful for the investors/shareholders to know
the exact amount of profit or loss of the
business.
8.Realization concept
• The concept of realisation states that revenue is
realized at the time when goods or services are
actually delivered.
• Revenue from any business transaction should be
included in the accounting records only when it is
realised.
• Selling goods is realisation, receiving order is not.
• Transactions should be recorded only when goods
are delivered to the buyer.