Explain any three accouting concept
Answers
There are total 8 types of concept
1) entity concept
2) money measurement
3) periodicity
4) accrual
5) going concern
6) cost
7) realisation
8) dual aspect
Let us know about most important/ frequently asked one
Accrual concept : " accrual" means recognition of the revenue as they are earned and the cost as they are incurred and not when money is paid or received.
Profit = Revenue less Expenditure
Under accrual concept all the transactions and events are recognized on MERCANTILE BASIS.
Cost concept : value o asset as shown in balance sheet must be it's historical cost
When a machine is acquired by paying rs 5,00,000 following cost concept that value of the machine is taken as rs 5,00,000. It is highly objective and free from all bias.
Current cost of an asset is not easily determined.
Money measurement concept : accounting data must be qualified so that data can be aggregated and hence summarized. Hence all transactions and events should be measured in terms of money. Transactions are recorded in books of account, in the ruling currency of the country where the books o accounts are prepared.
As per this concept, only those transactions, which are capable of being measured in terms of money are recorded in books of accounts. Transactions which are not monetary terms, even if they affect the result of the business materially, are not recorded in the books of accounts.
That's it
1) Accounting entity concept : entity of business is different from its owners & business should repay the capital at time of winding-up.
2) Money measurement : transactions which are capable of being expressed in monetary terms are recorded in the books of accounts the skills and intelligence of salesman is not measurable in money terms.
3) Accounting period : accounting data provided in the books of accounts should be verifiable & dependable.