accounting concepts agreed upon by accountants.
accounting Concept denotes logical consideration and a notion which is generally and widely accepted. The term is neatly used in the sense of a set, hard and fast rules but rather of rules of general application which provide guides in the selection of accounting method appropriate in particular circumstances.
In the other words, we can say that there are some assumptions on which accounting is based. These assumptions are most natural and are not forced ones There are general motions hence they are called accounting concept.
Various accounting concepts are as follows
1. Accounting period: Though accounting practice believes in continuing entity concept i.e., The life of the business in perpetual but still it has to report the results of the activity undertaken in the specific period normally one year.
Thus accounting attempts to present the gain or losses earned or suffered by the business during the period under review. Normally it is the calendar year (1st January to 31 st December) but in other cases it may be the financial year (1 st April to 31st March). On any other period depending upon the convenience of the business concerned.
2. Dual aspect concept: Dual aspect concept is that every transaction affects two accounts.. This is why double entry system of bookkeeping came into existence. All business transactions are recorded on the basis of this concept No transaction is complete without double aspect. This concept is the foundation on which the entries system of bookkeeping and accountancy is based.
3. Money measurement concept: Those transactions are recorded in books of accounts which can be expressed in money. Those transactions which cannot be expressed in money fall beyond the scope of accounting. One shortcoming of this concept is that the money value of that date is recorded on which transaction has taken place and later on due to inflation when changes in money value take place, these changes are not considered.
4.Realisation concept : This concept emphasis that profit should be considered only when realised. Without realisation of sale proceeds. There can be no profit revenue may be realised either for increasing an assets or it may be in the form of an extinction of an existing liability. Thus the whole of accountancy is based on the concept of realisation.
5 ENTITY CONCEPT : According to this concept the task of measuring income and wealth is undertaken by accounting, for an identifiable unit or entity. The unit so identified is treated different and distinct from its owners or contributors.; In law the distinction between owners and the business is drawn only in the case of joint stock companies but in accounting (his distinction's made in the care of sole-proprietor and partnership firm as well.
6. Cost concept: According to this concept fixed assets are recorded at the price at which they are acquired. The prices are formed as a cost. Due to the
costconcept market price is ignored and the balance sheet indicates the financial position on cost and expired cost basis.
7. Going concept: Concept relates with the indefinite long economical life of the business. The assumption is that business will continue to exist for unlimited period unless of course it is dissolved due to some reason or the other.
8. Accounting equation: Dual concept may be stated as for every debit, there is a credit. Every transaction should have two side effect to the extent of some amount. This concept has resulted in the accounting equation which states that at any point of time the assets of any entity must be equal in monetary terms to the total of owner's equity and outside's liabilities.
This may be expressed in the form of an equation :
A-L=P
where, A = stands for assets at the entity.
L = stands for liabilities.
P = stands for proprietor's claim,
