What is Accounting Concept and Accounting Principles? Describe in briefly.

 

Accounting Principles are sometimes refer concepts and conventions. 

Accounting Concept: Accounting concept is the rules which lay down the way the activities of a business are recorded.

 Or, accounting concept may be defined as an idea. Thus, an accounting concept is an assumption the underlies the preparation of the financial statements of the organization.

Or, a concept is a rule which sets down how the financial activities of a business are recorded.

A Convention is an acceptable method by which the rule is applied to a given situation.  

1.     The going concern concept implies that the business will continue to operate for the foreseeable future. In other words, it is assumed that the business will continue to trade for a long period of time.

 

2.     The consistency concept requires that the same treatment be applied when dealing with similar items not only in one period but in all subsequent periods. Examples (i) methods of depreciation,(ii) stock valuation.

    Consistency concept- adhering to the same method of recording and processing transactions.

3.     The prudence /Conservatism concept or principle -ensuring that profit is not shown as being too high, or assets shown at too high a value in the balance sheet

 

Or, Prudence is observed when reporting all accounting information.

 

4.     The accrual concept/matching concept says that net profit is the difference between revenues and expenses rather than the difference between cash received and cash paid.

Or, according to this principle, expenses are to be matched with revenue to determine net income.

5.     The business entity/separate/economic concept or principles implies that the affairs of a business are to be treated as being quite separate from the personal activities of the owner’s of the business.

Or, this means that the business is treated as being completely separate from the owner of the business.

Or, a business has a separate legal entity.

6.     Money Measurement Principle: This accounting principle means that only information which can be expressed in terms of money can be recorded in the accounting records.

7. Revenue recognition principle: cording to this principle, revenue is recognized when it is realized or earned.

8. Matching principle: According to this principle, expenses are to be matched with the revenue to determine net income.

9. Full disclosure Principle: According to this principle, accounting data, and financial information are to be fully disclosed for complete understanding.

10. Dual aspect principle-every transaction has two aspects-a giving and a receiving.

11. Historical Cost principle: The principle requires that all assets and expenses are recorded in the ledger accounts at their actual cost.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.           Errors of Omission-where a transaction is completely omitted from thebooks.

      Example- goods sold to Mr.£ 10000, but not recorded in the books.

 

    2. Errors of commission-Where a correct amount is entered, but in the wrong person’s      ant. Example- a sale of goods to J Roberts £500 is entered in error in J Robertson’s account.

 rrors of Principle-Where an item is entered in the wrong class/type of account. Example-

        A fixed asset is entered in an expense account.

 

4. Compensatiing errors-Where two errors of equal amount, but on opposite sides of                accounts, cancel out each other.

 

5. Errors of original entry-Where an item is entered using an incorrect amount. Example- Rent paid by cash £400 but recorded £300.

om Complete reversal entry-Where the correct amounts are entered in the correct accounts but each item is shown on the wrong side of each account. Example- Cash received       from Clinton £1000 but had been recorded as cash credited and Clinton debit.