Accounting Concepts

Basic Accounting Concepts

Financial statements, balance sheets, income statements, and cash flow statements are multipurpose documents relied on by many different users to provide objective and accurate financial information about a business. For this reason, they are produced within a generally agreed framework based around established accounting principles whose foundation is the four accounting assumptions.

The accounting assumptions are supplemented by a number of accounting concepts (sometimes referred to as accounting principles), which act as guides on how particular business transactions should be reported in financial statements, and allow them to be objective (not subject to bias or influenced by personal feelings or opinions).

What are the Fundamental Accounting Concepts?

The following are the main accounting concepts to consider when preparing financial statements:

  1. Revenue Realization Accounting Concept
  2. Revenue is considered as earned income when it is realized, this is at the time the goods or services are passed to the customer and the customer incurs liability for them.

  3. Matching Accounting Concept
  4. Expenses are matched to revenues within an accounting period. Profit is therefore the difference between revenue and expenses not cash received and paid. This accounting concept is sometimes referred to as the accruals accounting concept.

  5. Full Disclosure Accounting Concept
  6. Financial statements should disclose fully and completely all significant information.

  7. Historical Cost Accounting Concept
  8. Assets are normally shown at cost price in the balance sheet, and this cost is the basis for all subsequent accounting for the asset. The balance sheet does not show the current value of an asset.

  9. Dual Aspect Accounting Concept
  10. There are two sides to accounting, one represented by assets (receive benefits) and the other represented by liabilities (give benefits). This is basically a statement of the accounting equation Assets = Liabilities + Capital. The method of recording this dual aspect is called mdct.ru.

  11. Verifiable and Objective Evidence Accounting Concept
  12. Each accounting transaction should have adequate (verifiable) documentary evidence to support it, and this evidence should be free from bias (objective).

Accounting Concepts and Accounting Principles

accounting principles v 1.0
Accounting Principles Preview

Accounting concepts are one part of a framework established by an agreed set of accounting principles, as illustrated in the diagram to the left.

The accounting principles diagram is available for download in PDF format by following the link below.

Accounting Concepts November 6th, 2016Team

You May Also Like


Related pages


provision accounting entriespresent value of annuity calculator excelvertical analysis and horizontal analysisprofitability ratios listdefine consignee and consignorfixed overhead varianceperiodic or perpetual inventory systemvertical analysis of financial statements examplefv calculator onlineactivity ratios measurefixed overhead expensesthe journal entry for recording an operating lease payment wouldhow to find dividends paid on balance sheettypical invoice termscash disbursement journal definitioncost of goods manufactured calculatorvertical analysis for balance sheetaccounts reconciliation interview questionsaccounting liquidity ratioshow do you calculate ending inventorywhat are special journals in accountingcost of good sold equationcost accounting standard costing and variance analysiscalculating accounts receivable turnoveradjusting inventory journal entryppe accountsformula for quick ratiocogs examplesmall business excel accounting templateacid test liquidity ratioadjusting entry for supplies on handnote receivable definitioncontribution margin statement examplewhat is a lifo reservesales ledger control account definitioncreditor turnover ratiomodified internal rate of return calculatorhow do you prepare a trial balanceuncredited cheques and unpresented chequesprepaid rent in balance sheetdefine cashbookwhat is sales ledger control accountbasic accounting equation pdfexample of horizontal analysis of financial statementsdebtor ledgerstraight-line discount amortizationprepayments and accrualsexamples of double entry bookkeepingpv of growing perpetuityfv calculation in excelaccelerated depreciation formuladiminishing value depreciation formulawhat is a growing perpetuitycalculate pv of annuityformula for diminishing value depreciationcash cover ratiocost of goods manufactured and sold statement formathow to calculate retained incomestraight line depreciation calculator excelhow to calculate contribution margin percentagevariable costing definitionwhats petty cashbills payable entrywhat is accounts payable aging reportmarkup rate calculatormargin vs markupformula for fifocost volume profit formulajournal entry for ending inventoryaccount receivable turnover ratio formulaexample of horizontal analysis of financial statementsexamples of variable overheadsfixed asset turnover ratio industry averagesold inventory for cash journal entryjournal entry for sale of inventorytrade payables and trade receivablesbasic accounting ledgerformula of contribution marginexcel depreciationhow to calculate leverage ratio from balance sheet