Question

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What do you learn in an accounting concepts class?

Answer 1

Lets take an example for better understanding :)

In USA there is a basic rule to be followed by everyone that one should walk or drive on his/her right hand side of the road. It helps in the smooth flow of traffic. Similarly, there are certain rules that an accountant should follow while recording business transactions and preparing accounts. These may be termed as accounting concepts.

There are 5 basic accounting concepts

1. Accrual Concept:

It is the one of the fundamental accounting concept which explains

• Revenue is recognised when it is earned and not at the time of receipt
• Expenses are recognised when it is incurred and not at the time of payment

2.Conservatism Concept:

It is also called as doctrine of prudence. It explains about

• Revenue is recognised only when there is when there is certain resonability of realisation
• Expenses are recognised when there is reasonable probability that they will be incurred

3.Consistency Concept:

• The accounting methods once adopted by the company must be consistently applied in future
• The changes should be done only when statutory body is required or for better presentation
• The effects of changes should be disclosed properly

4.Going concern concept:

• The companies annual statements are prepared in an assumption that business will remain operations in future
• Based on this assumption expenses and revenues will be deferred into future

5.Matcing Concept:

• The expenses relating to revenue should be recognised in the same period in which the revenue is recognised
• This will frame a view that all the expenses relating to that period is reported

6.Materiality Concept:

• It refers to the situation where the financial information of the company is considered to be material from the point of view of preparation of financial statements if it has the potential to alter the view or opinion of reasonable person

7.Economic Entity Concept:

• The transactions are segregated from those of its owners. By doing so there will be a clear distinction between personal and company expenses

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