Explain any five accounting concepts
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The following are some of the accounting concepts that are quite popular in accounting:
- Money Measurement Concept: ...
- Business Entity Concept: ...
- Going Concern Concept: ...
- Cost Concept: ...
- Dual Aspect Concept (Accounting Equation Concept): .
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There are the necessary assumptions or conditions upon which accounting is based. Accounting concepts are postulates, assumptions or conditions upon which accounting records and statement are based. The various accounting concepts are as follows:
1. Entity Concept:
For accounting purpose the “business” is treated as a separate entity from the proprietor(s). One can sell goods to himself,, but all the transactions are recorded in the book of the business. This concepts helps in keeping private affairs of the proprietor away from the business affairs. E.g. If a proprietor invests Rs. 1,00,000/- in the business, it is deemed that the proprietor has given Rs. 1,00,000/- to the “business” and it is shown as a “liability” in the books of the business. Similarly, if the proprietor withdraws Rs. 10,000/- from the business, it is charged to
2. Dual Aspect Concept:
As per this concept, every business transaction has a dual affect. For example, if Ram starts business with cash Rs. 1,00,000/- there are two aspects of the transaction: “Asset Account” and “Capital Account”. The business gets asset (cash) of Rs. 1,00,000/- and on the other hand the business owes Rs. 1,00,000/- to Ram.
3. Going Business Concept (Continuity of Activity):
It is assumed that the business concern will continue for a fairly long time, unless and until has entered into a state of liquidation. It is as per this assumption, that the accountant does not take into account the forced sale values of assets while valuing them.
4. Money measurement concept:
As per this concept, in accounting everything is recorded in terms of money. Events or transactions which cannot be expressed in terms of money are not recorded in the books of accounts, even if they are very important or useful for the business. Purchase and sale of goods, payment of expenses and receipt of income are monetary transactions which are recorded in the accounting books however events like death of an executive, resignation of a manager are such events which cannot be expressed in money.
5. Cost Concept (Objectivity Concept):
This concept does not recognize the realizable value, the replacement value or the real worth of an asset. Thus, as per the cost concept
a) as asset is ordinarily recorded at the price paid to acquire it i.e. at its cost, and
b) this cost is the basis for all subsequent accounting for the asset.
For example, if a machine is purchased for Rs. 10,000/- it is recorded in the books at Rs. 10,000/- and even if its market value at the time of the preparation of the final account is Rs. 20,000/- or Rs. 60,000/- the same will not considered.
1. Entity Concept:
For accounting purpose the “business” is treated as a separate entity from the proprietor(s). One can sell goods to himself,, but all the transactions are recorded in the book of the business. This concepts helps in keeping private affairs of the proprietor away from the business affairs. E.g. If a proprietor invests Rs. 1,00,000/- in the business, it is deemed that the proprietor has given Rs. 1,00,000/- to the “business” and it is shown as a “liability” in the books of the business. Similarly, if the proprietor withdraws Rs. 10,000/- from the business, it is charged to
2. Dual Aspect Concept:
As per this concept, every business transaction has a dual affect. For example, if Ram starts business with cash Rs. 1,00,000/- there are two aspects of the transaction: “Asset Account” and “Capital Account”. The business gets asset (cash) of Rs. 1,00,000/- and on the other hand the business owes Rs. 1,00,000/- to Ram.
3. Going Business Concept (Continuity of Activity):
It is assumed that the business concern will continue for a fairly long time, unless and until has entered into a state of liquidation. It is as per this assumption, that the accountant does not take into account the forced sale values of assets while valuing them.
4. Money measurement concept:
As per this concept, in accounting everything is recorded in terms of money. Events or transactions which cannot be expressed in terms of money are not recorded in the books of accounts, even if they are very important or useful for the business. Purchase and sale of goods, payment of expenses and receipt of income are monetary transactions which are recorded in the accounting books however events like death of an executive, resignation of a manager are such events which cannot be expressed in money.
5. Cost Concept (Objectivity Concept):
This concept does not recognize the realizable value, the replacement value or the real worth of an asset. Thus, as per the cost concept
a) as asset is ordinarily recorded at the price paid to acquire it i.e. at its cost, and
b) this cost is the basis for all subsequent accounting for the asset.
For example, if a machine is purchased for Rs. 10,000/- it is recorded in the books at Rs. 10,000/- and even if its market value at the time of the preparation of the final account is Rs. 20,000/- or Rs. 60,000/- the same will not considered.
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