ACCOUNTING CONCEPTS
ACCOUNTING CONCEPTS
What are the Account Concepts?
In order to maintain uniformity and consistency in preparing and maintaining books of accounts,
Certain rules or principles have been evolved. These rules/principles are classified as concepts and conventions. These are foundations of preparing and maintaining accounting records.
“Accounting concept refers to the basic assumptions and rules and principles which work as the basis of recording of business transactions and preparing accounts.”
Business Entity Concept
Money Measurement Concept
Going Concept
Accrual Concept
Accounting Cost Concept
Matching Concept
Accounting Period Concept
Business Entity Concept
This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. Thus, the business and personal transactions of its owner are separate.
For example, when the owner invests money in the business, it is recorded as liability of the
Business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense.
Example
Suppose Mr. A started business investing Rs100000. He purchased goods for Rs40000, Furniture for Rs20000 and plant and machinery of Rs30000. Rs10000 remains in hand. These are the assets of the business and not of the owner. According to the business entity Concept Rs100000 will be treated by business as capital i.e. a liability of business towards the owner of the business.
The following points highlight the significance of business entity concept:
This concept helps in ascertaining the profit of the business as only the Business expenses and revenues are recorded and all the private and Personal expenses are ignored.
These concept restraints accountants from recording of owner’s private/personal transactions.
It also facilitates the recording and reporting of business transactions from the business point of view
It is the very basis
What are the Account Concepts?
In order to maintain uniformity and consistency in preparing and maintaining books of accounts,
Certain rules or principles have been evolved. These rules/principles are classified as concepts and conventions. These are foundations of preparing and maintaining accounting records.
“Accounting concept refers to the basic assumptions and rules and principles which work as the basis of recording of business transactions and preparing accounts.”
Business Entity Concept
Money Measurement Concept
Going Concept
Accrual Concept
Accounting Cost Concept
Matching Concept
Accounting Period Concept
Business Entity Concept
This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. Thus, the business and personal transactions of its owner are separate.
For example, when the owner invests money in the business, it is recorded as liability of the
Business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense.
Example
Suppose Mr. A started business investing Rs100000. He purchased goods for Rs40000, Furniture for Rs20000 and plant and machinery of Rs30000. Rs10000 remains in hand. These are the assets of the business and not of the owner. According to the business entity Concept Rs100000 will be treated by business as capital i.e. a liability of business towards the owner of the business.
The following points highlight the significance of business entity concept:
This concept helps in ascertaining the profit of the business as only the Business expenses and revenues are recorded and all the private and Personal expenses are ignored.
These concept restraints accountants from recording of owner’s private/personal transactions.
It also facilitates the recording and reporting of business transactions from the business point of view
It is the very basis