|Discuss important concepts of accounting.|
Meaning:- Accounting concepts are the fundamental assumptions which are followed in the accounting way. Assumption is that which is accepted true without proof. It is treated as a true opinion which does not need any proof. These are logical assumptions and widely accepted.
In other words:- These are accepted rules on which basis accounting transactions are recorded and final accounts are prepared. These rules are not hard and fast rules rather general rules which help in selection of accounting methods in particular circumstances.
There are some business concept as following :
Business Entity Concept
Money Measurement Concept
Going concern Concept
Accounting period Concept
1. Business Entity Concept:- In the accounting language Business entity is separate from its owner. It means transactions related to business are involved in the account and not include that transaction which are related to the personal or business owners. Thus, the account reflected the data with the point of entity rather than the interests of owners.
2. Money Measurement Concept:- In accounting, transactions are recorded which can be measured in the monetary values. As we know money is an excellent indicator of values. So at the time of recording transactions in the books of account are recorded in terms of the value of money. However, changes in purchasing power or value of money are ignored.
3. Going concern Concept:- Concept of accounting assumes that an entity is a going concern that will operate for a long period in the future. As deaths and retirement of company members are not affected on the company business in the long run. However, Every entity has a certain life.
4. Accounting period concept:- Members of the company can’t wait for the calculation of profits till the end of the business. As business is presumed to have a very long life. So the accounting period concept provides such a period in which profit and loss of business is found for all transactions which occurred in the year.
5.Cost concept:- Accounting concept is to record all assets at the price paid to acquire it as well as expenses incurred on its acquisition and installation. Beside it, what is outstanding expense is also considered in the accounting language. However, the market price of assets is ignored.
6.Matching Concept:- It is that concept of accounting which implies that all expenses related to a particular period of time are matched with the revenue of the same period. So identification of revenue earned is matched with the identification of expenses incurred for the same accounting period.
7. Accounting Equation:- This equation tells us that all assets are always equal to the liabilities in the running business. This concept made the double entry system a scientific and universally acceptable system of accounting. This equation is following as accounting concepts
Capital + Liabilities = Assets
Assets+Expense = Liabilities+Capital+Revenue
8. Accrual Concept:- This concept describes that revenue earned in the current period is recorded whether this has not been received yet. But it is a right to receive the payment in the future after the accounting period. So expenses are also recognized in the books when the liability has arisen. It is immaterial when the cash is paid for the transactions. Thus expenses incurred may not be paid and revenue earned may not be received.
Conclusion:- So the concept of account assumes all the rules that we have discussed above. And considered in the same way when we practise accounting. These rules are not hard and fast as well as compulsory.
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