Accounting Concepts

Accounting concept means basic rules, principles as well as assumptions that works like base of the record keepings of transactions of the business and the preparation of accounts. Accounting concepts important object is maintaining consistency as well as uniformity in records of accounts. Such concepts frame accounting’s basis. Here below we discuss two main accounting concepts:

Business entity concept – It is assumed by the concept, that, business organization and the owner of it are 2 distinct entities, for the purpose of accounting. So transactions made for personal purpose and business purpose are totally distinct. Following are some significance of entity concept:

• The concept assist in business profit’s ascertainment as business revenues and expenses are only recorded ignoring all personal and private expenses.
• Accountants are retrained from writing or recording personal and private transactions of the owner.
• It facilitates reporting and recording of the transactions of business from business’s viewing point.
• This concept is very foundation of the accounting principles, concepts and conventions.

Annual accounting period concept – All transactions of business are being recorded or entered in account’s books on a supposal that the profits earned on such transactions of business will be determined for specified time period. We call this as the accounting-period-concept. The concept, thus, needs that balance-sheet as well as P/L a/c must be maintained regularly. It is compulsory for various purposes such as profit calculation, ascertaining position of finance, computation of tax, etc. It is also assumed by the concept that business’s indefinite-life is being divided-up into many parts which is called Accounting-period, which can be-of a year, 6 months or 3months or 1 month. 1 year, usually is considered as 1 accounting-period that can be either financial or calendar year. According to this concept each and every transaction is entered in account’s books for particular time period. So goods sold and purchased in that period, salaries, rents, etc. paid only for that period is accounted against and for that time-period only.

Questions:

• What is accounting concepts?
• What are the 2 main accounting concepts?