Framework of Accounting

Accounting is based on the following concepts:

Entity Concept
Money measurement Concept
Going concern Concept
Cost Concept
Conservatism Concept
Dual Aspect Concept
Accounting Period concept
Accrual Concept
Realisation concept
Matching concept
Materiality Concept

Entity Concept

For purposes of Accounting the business firm is regarded as a separate entity.Accounts are maintained for this entity as distinct from the persons who are connected with it.

Money Measurement Concept

Accounting is concerned with only those facts which are expressible in monetary terms.

Going Concern concept

Accounting is normally based on the premise that the business entity will remain a going concern for an indefinitely long period and not concern which is likely to be wound up in near future.

Cost Concept

Assets acquired by a business are generally recorded at their cost.

Conservatism Concept

Anticipate no profit but provide for all possible losses.

Dual Aspect Concept

Assets = Equities. Each event has two aspects.

An increase in owners equity resulting from a business operation is called a revenue. While a decrease in Equity from business operations is called a expense. When revenues exceed expenses the difference is called income,when expenses exceed the revenues the difference is called a loss.

Accounting Period Concept

The accounting period used for external reporting is usually one year. It is referred to as the financial

year.

Accrual Concept

Income is measured by changes in the owners equity arising from the operations of business.

Realisation Concept

Revenue is deemed to be earned only when it is realised.

Matching Concept

Once revenues for an accounting period are recognised expenses incurred in generating these revenues are matched against them.

Materiality Concept

Since maintaining the accounts involves time and expenses the Accountant is only concerned with events which are material.

Comments

Money Markets Instruments

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A Summary of Behavioral Finance

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NPV-Net Present Value :Capital Budgeting Concepts

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