Accounting concepts

 

Accounting concepts:

To understand the types of accounting principles, you must first understand the accounting conventions and the accounting concepts that form the accounting principles involved in business accounting. So, let’s begin with the concepts and conventions that overlap in accounting practices, including the popular accounting principles. 

Some of the important accounting concepts and conventions underpinning the principles of accounting are discussed below:

• The concept of money measurement: 

Business transactions in accounting use money as a measure and unifying factor in accounting measurements. This accounting principle makes perfect sense once you accept money as the common measurement unit in recording financial transactions. The accounting principles for money used in financial transactions are that only events and transactions involving money are recorded as accounting transactions and show the amount or value of money in the transaction in its recording.

• The concept of a business entity: 

This accounting concept says your business identity is independent of your identity. The accounting principle views the business owner and the business as separate entities that are distinctly separate as far as financial transactions and accounting are concerned. Thus, legally, the business from your name can be sued, or your business can be sued independently. 

• The concept of an ongoing enterprise: 

This concept states that the enterprise’s financial transactions are assumed to be tracked and recorded based on the presumption that it will continue to remain in operation independently and for a very long time besides fulfilling its obligations as per its commitments.

• The concept of cost: 

This concept defines and sets the rules to account for an organisation’s fixed assets. The cost concept states that an organisation’s fixed assets must always be accounted for at the item’s original price and its value depreciated on an annual basis. This is based on wear and tear, asset usage, accidents that may occur, and the time elapsed since the asset was bought, among other factors.

• The concept of duality: 

This concept of duality states that for every credit transaction of a specific amount, a corresponding debit transaction for the same amount must also be made in accounting practices. This premise is used as the foundational principle in a double entry accounting statements. 

• The concept of accounting year: 

This concept or accounting principle states that each business is free to choose a specific period to start and finish its accounting reporting cycle, which must be mentioned in its reporting. This is called the accounting periodicity and could be weekly, quarterly, monthly, half-yearly or annually.

• The concept of matching expenses: 

This interesting concept stresses that if any revenue is recorded and recognised in accounting, then the expenses incurred related to it in earning the revenue are also accounted for and recognised. This is done to give an accurate value of the profit earned in the specified accounting period.

• The concept of realisation of dues: 

This concept in accounting states that whenever a revenue transaction is reported or accounted for, it is considered revenue earned, immaterial of when its payment is finally received. However, all things received or paid for are not considered a profit transaction until the services or goods so bought are delivered to the buyer.