Accounting concepts

                                  What is Accounting?

Accounting or accountancy is the measurement, processing, and communication of financial and non-financial information about economic entities such as businesses and corporations.

Accounting concepts: 

                                   Accounting Concepts are the basic conditions or assumptions upon which the science of accounting is based. There are Five basic concepts of accounting.
  • Business Entity concept
  • Going concern concept
  • Money Measurement concept
  • Periodicity Concept
  • Cost concept

Business Entity Concept:

                       This accounting concept separates the business from its owner. As far as accounting is concerned the owner and the business are two separate entities. This separation not only has important legal implication but also has an important legal implication. This enables the business to segregate the transactions of the company from the private transaction of the proprietors.

Going concern concept:

                        The going concern concept assumes that a business will continue to operate indefinitely. So it assumes that for the foreseeable future the business will not be winding up. This leads to the assumption that the business will not have to sell its assets any time soon and it will meet all its obligations as well.

Money Measurement concept:

                         This accounting concept states that only financial transactions will find a place in accounting. So only those business activities that can be expressed in monetary terms will be recorded in accounting. Any other transaction, no matter how significant, will not find a place in the financial accounts.

Periodicity Concept:

                            Every organization, according to its needs, chooses a specific period of time to complete an accounting cycle. Generally, the time chosen is a year we call the accounting year. The time period is mentioned in the financial statements.
So the indefinite life of an organization is divided into shorter, generally equal time period.

Cost concept:

                             Cost concept demands all assets to be recorded in the books of accounts at the price at which they were bought. This involves the cost incurred for transportation, installation, and acquisition. The cost concept is a traditional method concerning the asset is paid on the date of purchase and does not change year after year.
                 In this post we have learnt regarding concepts of accounting and soon will come back with a new post..

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