Accounting
concepts are given rules, practices , and procedures otherwise known as
Generally Accepted Accounting Principles (GAAP). They are:
1. Business
Entity: Every
economic unit, regardless of its legal form of existence, is treated as a
separate entity (in accounting) from parties having proprietary or economic
interest in it.
Entity: Every
economic unit, regardless of its legal form of existence, is treated as a
separate entity (in accounting) from parties having proprietary or economic
interest in it.
2. Going
Concern: The
assumption is that the business unit will operate in perpetuity i.e. the
business is not expected to liquidate.
Concern: The
assumption is that the business unit will operate in perpetuity i.e. the
business is not expected to liquidate.
3. Periodicity:
Although the
results of a business unit cannot be determined with precision until its final
liquidation, the users of financial statement or owners of the business
required that the business be divided into accounting periods (usually one
year) and that changes in position are measured over the periods.
Although the
results of a business unit cannot be determined with precision until its final
liquidation, the users of financial statement or owners of the business
required that the business be divided into accounting periods (usually one
year) and that changes in position are measured over the periods.
4. Realization:
This concept
establishes the rule of the periodic recognition of revenue as soon as it is
capable of objective measurement and the value of asset.
This concept
establishes the rule of the periodic recognition of revenue as soon as it is
capable of objective measurement and the value of asset.
5. Matching
Concepts: This
concept holds that for any accounting period, the earned revenue and all the
incurred cost that generated that revenue must be matched and reported for the
period.
Concepts: This
concept holds that for any accounting period, the earned revenue and all the
incurred cost that generated that revenue must be matched and reported for the
period.
6. Consistency:
This concept holds
that when a company selects a method, it should continue (unless conditions
warrant a change) to use that method in subsequent period, so that a comparison
of accounting figures over time is meaningful.
This concept holds
that when a company selects a method, it should continue (unless conditions
warrant a change) to use that method in subsequent period, so that a comparison
of accounting figures over time is meaningful.
Others
are:
are:
7.
Objectivity
Objectivity
8.
Fairness
Fairness
9.
Materiality
Materiality
10.
Prudence
Prudence
