Accounting concepts are a company’s rules and guidelines to manage accounts that record financial transactions.
These basic accounting concepts are:
Business Entity Concept:
The business entity concept states that the business enterprise is separate from its owner.
Money Measurement Concept:
The money measurement concept says that a business should record only those transactions that can be expressed in monetary terms.
Going Concern Concept:
The going concern concept assumes an organization would continue its business operations for the foreseeable future.
The Accounting Period Concept:
The accounting period concept measures a timeframe within which a business records and reports its financial performance. An accounting period of a company may coincide or not with the fiscal year.
Objectivity Concept:
The objectivity concept states that an organization should objectively record transactions.
The Matching Concept:
The matching concept states that an organization should recognize its expenses in the same financial year if the cost is related to the revenue of that year.
Revenue Recognition Concept:
The revenue recognition concept, also known as the realization concept, defines that an organization should record its revenue from business only when it is realized, not when the firm has received the cash.
The Dual Aspect:
The dual aspect or duality concept describes the basis of recording business transactions in the books of accounts. In here, every transaction of the business has a two-fold effect.
The Cost Concept:
The cost concept states that an organization should record all of its assets at their purchase price in the books of accounts.
Accrual Concept:
Accrual is a fundamental concept that guides how a business can record cash or credit transactions.