Accounting Concept and Principles

The important concepts and principles of accounting are explained in detail below. 

1. Money Measurement Concept: According to this concept, a business records only those transactions that can be measured in money. If they are not converted into monetary values, it is difficult to prepare financial statements, disseminate financial information and provide data.

2. Business Entity Concept: According to this concept, the existence of a business is accepted as separate from its owner for the purpose of accounting. If a business is not considered a separate entity, personal and business economic activities are mixed and it is impossible to determine the business volume or real profit and financial condition of the business.

3. Accounting Period Concept: A business is a continuous process, which also prolongs its life span. The financial year is usually from mid-Baishakh to mid-Chaitra or from Shrawan to mid-Asr and the English date is from January to December or from July to June, which is 12 months.

4. Going Concern Concept: According to this concept, a business organization is a continuous process over time. Based on this concept, business organizations should keep accounting records of income and expenses.

5. Cost Concept: According to this concept, while recording fixed assets, records are always kept at the cost price or purchase price, not at market value, due to which the real economic situation can be known. The value of fixed assets decreases during the life of the asset, this process is called depreciation.

6. Double-sided Concept: According to this concept, there are two sides to every transaction. It is also called double-entry bookkeeping. Every business transaction has two sides, out of which one side is debited and the other side is credited. This concept provides the basis for recording business transactions in the books of accounts.

Assets = Capital + Liabilities

7. Revenue Realisation Concept: According to this concept, income occurs only when a good or service is sold to the customer, and the buyer realizes his obligation for it.

8. Matching Concept: According to this concept, expenses incurred and income received during a certain period are matched to know what profit or loss has occurred during a certain period. Thus, when comparing income and expenses, if expenses are less than income, it is considered a profit, and if expenses are more than income, it is considered a loss.

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