Accounting Concepts

  • Generally Accepted Accounting Principles (GAAP) refers to the rules or guidelines adopted for recording and reporting of business transactions in order to bring uniformity in the preparation and presentation of financial statements.
  • Accounting Principles are the generally accepted set of principles based on which transactions are recorded and financial statements are prepared. Significance of accounting principles is that it helps to compare the accounting information of a firm with the other firm and with the previous year.
  • Accounting concepts are the basic assumptions within which accounting operate.
  • Business entity concept means that for the purposes of accounting, the business and its owners are to be treated as two separate entities and business transactions are recorded from firm’s point of view and not from that of the owner.
  • Money Measurement concept states that only those transactions are to be recorded in the books of accounts that can be expressed in terms of money.
  • Accounting Period concept states that the life of an enterprise should be broken into smaller periods so that the performance of the enterprise can be measured at regular intervals.
  • Full Disclosure concept states that accounts should be prepared in such a way that all material information required by the users of financial statements is clearly disclosed.
  • Materiality concept holds that accounting should focus on material facts, i.e. important items or events.
  • Conservatism concept states that all anticipated losses should be recorded but all anticipated gains should be ignored.
  • Historical concept states that all assets of an enterprise are recorded in the books of accounts at their purchase cost.
  • As per Matching Concept, the cost of a particular period should be charged from the revenue of the same period only.
  • Dual Aspect concept holds that every transaction should be recorded at two places, a debit and a credit side of equal amount.
  • Revenue Recognition concept states that revenue should be treated as realised, whenever the ownership of goods changes.
  • Objectivity concept states that accounting data should be definite, verifiable and free from personal bias of the accountant.
  • Stable Unitary Money concept states that the purchasing power of monetary unit remains same.


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