Accounting Concepts | 11 Types of Accounting Concepts

                Today in this article let us try to understand what is accounting concepts ? Different types of accounting concepts and what each one tell us.

Accounting Concepts

            Accounting Concepts are the basic accounting assumptions or fundamental ideas on which the science of accounting is based. It helps to guide the identification of transactions to be recorded, they help to convey the same meaning to all end users of accounting information as far as practicable and also brings the uniformity in the accounting practices. 

Types of Accounting Concepts

                      The important accounting concepts are,

1.  Money Measurement Concept: 

           The money measurement concept implies that a record is made of only those transactions or events which can be measured or expressed in terms of money. While non-monetary events such as good quality of the products, team work that is found in economic concern and much more cannot be recorded as they cannot be expressed in terms of the money. Thus this concept implies that business transactions are recorded in the books of accounts in terms of the value of the money that is found at the time of the transactions are recorded. Thus the subsequent changes in the value of money are ignored and it is assumed that the value of the money will remain constant over time.

2.  Separate Entity Concept: 

            This concept implies that business and proprietors are regarded as two separate entities and the transactions of the business are distinguished from those of proprietors and the books of the business, only the transactions of the business are recorded and not the private transactions of the proprietor are recorded. Thus we can conclude that business and proprietors are two separate legal entities. The transactions are only  recorded from the business point of view.

3.  Going on Concept: 

              This concept implies that the accounting of an enterprise is regarded as a going concern which means that the concern will continue to operate for indefinite long period of time and there is neither necessity to windup the concern forcible. This concept doesn't mean the continuance of the business rather means that the business will operate fairly for a longer period of time.

4.    Cost Concept or Historical Cost Concept:

           The concept implies that the asset which is acquired by a firm or business is recorded in the books of accounts at the cost i.e. the actual cost paid for acquiring the asset. Thus the market price of the asset is ignored and the cost price forms the basis for the subsequent accounting for the at asset. The cost concept is only relevance for fixed assets and not for current assets this means that the fixed assets on the balance sheet are shown on cost basis and current assets are generally shown on balance sheet are not on the cost price but at cost or market price which ever is lower.

5.  Dual Aspect Concept: 

            This concept implies that every business transaction always results in receiving some benefits of some value and giving some benefit of the same value. For example in business goods are purchased of the same value for the same amount of the value of money. Thus every business transactions have two aspects of equal value. So in accounting a record is made of  dual or two aspect for each transaction and this is called dual aspect concept. Thus this concept leads to equality of the assets and liabilities plus capital. And at any point of time total assets are equal to the total liabilities plus proprietor’s capital.

6.   Accounting Period Concept: 

           The idea of this concept comes from the going concern concept. This concept implies that for measuring the financial results of the business periodically. The  working life of an firm or organization is spitted into convenient short period of time called accounting periods so that at the end of the financial period or accounting period the profit and loss and the financial position can be assessed  by preparing financial statements. The accounting period may be three months, six months, one year or two years but usually one is regarded as the most ideal one as it is recognized by law and tax purpose too. The length of the accounting period depends on the nature of the business and the needs of the proprietor. There are two accounting period January 1^st to December 31^st (English Calendar) and the financial year of government (April 1^st to March 31^st)

7.   Objective Evidence Concept: 

              This concept means that all the accounting entries are to be supported by source of documents or business documents such as invoice, vouchers etc. This concept means that the evidence must be completely objective and must be subjected to verification by auditors.

8.  Realization Concept: 

            This concept means that revenue is earned from the sale of goods or from provision of services to customers and revenue is to be recognized or considered to be realized only when goods or services are transferred to the customers and the customers become legally liable to pay for them. Thus is order is received or advance payment is received from the customer it doesn’t mean that the revenue is realized or earned.

9.   Accrual Concept:

             This concept means that when a transaction has been entered into its consequences will certainly follow. So, transactions must be brought into record, whether they are settled in cash or not. It suggest that the accountant must treat as revenue all those items for which there is legal right to receive, although the cash might not have been received. Similarly an accountant must treat expenses of all those items for which there is legal obligation to pay even if the payment is not paid for them.

10.Matching Concept:

                 This concept implies that in order to assess the profitability or loss in a firm or business two factors responsible and they are revenue and expenses. Thus when both are matched with each other and the net difference is realized as net profit or net loss. Every organization prepares the income statement or profit and loss account comparing the revenue and expenses so that they can ascertain the net profit or net loss for a accounting period or financial period. The process of matching revenues and costs involves identification and measurement of revenues and expenses for  the accounting period and comparing the revenues with expenses in order to ascertain the net profit or net loss.

11. Legal Aspect Concept:

               This concept implies that the accounting records and books should reflect the legal position of business. For instance if goods are sold by a firm on approval basis of`accounting. The customers to whom goods are sold on approval basis should not be treated as debtors unless the goods are approved by them.

               I hope now you have understood meaning of accounting concept and what different types of accounting concepts tell us after going through this article.