Accounting Concepts In Accounting

Accounting Concepts

The main purpose of accounting is to ascertain profit or loss during a specified period, to show financial position of the business on a particular date and to have control over the firm’s property. Such accounting records are required to measure the income of the business and communicate the information so that it may be used by managers, owners and other parties.

Accounting is a discipline which records, classifies, summarises and understands financial information about the activities of a concern so that intelligent decisions can be made about the concern.

From the above sentences the following features of accounting arise:

• It is an art of recording business transactions.

• It is an art of classifying business

Business entity concept: This concept implies that a business unit is separate and distinct from the persons who supply capital to it, i.e. owner and business are two separate entities. Business is kept separate from the owner so that transactions of the business may also be recorded with him.

2. Money measurement concept: This implies that any transaction we do should have measurable value if we want to account it. The advantage of expressing business transactions in terms of money is that money serves a common denominator by means of which diverse facts about a business can be expressed in terms of numbers i.e. money.

3. Going concern concept: It is assumed that a business unit has a practical belief of continuing business at a profit for an indefinite period of time. A business unit is believed to be going concern and not a gone concern.

4. Dual aspect concept: According to this concept, every financial transaction involves a dual aspect, credit and debit. There must be a double entry to have a complete record of each business transaction.

5. Periodicity concept: This concept plays a very important role in determining the income of a particular accounting period. It is also helpful in ascertaining the true and fair financial position of a business entity on a particular date at a particular point of

Realisation concept: According to this concept, revenue is considered as being earned on the date when the property in goods passes to the buyer and he becomes legally liable to pay. In this concept, unrealised gains are not considered in accounting.

9. Accrual concept: In this concept it takes in the date when the project is due. As a result of accrual concept, outstanding expenses and outstanding incomes are taken into consideration while preparing final accounts of business entity.

10. Objective evidence concept: It is nothing but the documentary proof. It means that there is some evidence in ascertaining the correctness of information reported. Evidence should be such which will minimise the possibility of error.

Need for accounting

The main aim of a business is to earn profit. For earning profit, a businessman will either purchase the goods in one market at certain price or sell it in another market at higher price. Moreover in a big business, information is required for planning, control, evaluation of performance and decision making. In order to achieve all these purposes it would be necessary to record the transactions. Hence accounting is of very much importance.

International financial reporting