Explain basic accounting concepts with double entry bookkeeping system
Answers
Accrual Concept
According to this concept, revenue is recognized when earned, and expenses are recognized when assets are consumed. Accounts are prepared on accrual basis, instead of cash basis, which gives a truer result.
Conservatism concept
This concepts states a businessman must have provisions made for all losses, whether incurred or not, and must not assume any profits. This concept tends to result in more conservative financial statements.
Consistency concept
Once a business chooses to use a specific accounting method, either Written Down method or Straight Line method, it should continue using it for a long period of time. By doing so, financial statements prepared in multiple periods can be reliably compared.
Business entity concept
According to this concept, business and businessman are separate. Accounts are maintained by the business point of view.
Going concern concept
According to this concept, the business organisation is assumed to be operational for a long period of time and that there won't be any major reductions in its operational activities
Dual Aspect concept
According to this concept, accounts are maintained by following the dual entry system rule. For every debit entry, there will be a credit entry and the balances of both debit side and credit side must be equal.
Money Measurement concept
According to this concept, only those business transactions are recorded which can be measured in monetary terms.