Concepts of Accounting

Entity Concept

Accounts are kept for an entity as distinct from the people who own, run or do business with the entity.

Money Measurement Concept

Financial accounting deals only with things that can be represented in monetary terms

Going Concern Concept

An entity is expected to remain in operation for the indefinite future

Consistency Concept

An entity should use the same accounting methods and procedures from period to period unless it has a sound reason to change methods

Materiality Concept

An entity need only apply proper accounting to items that are material i.e. significant to potential users of the financial statements

Dual Aspect (Double Entry Bookkeeping)

Historical cost concept

Realization

[Income Statement] When to recognise revenue? Deals with converting assets into cash equivalents.
1. Revenue must be earned: Customer must receive goods/service
2. Revenue must be realizable: Customer paid / expected to pay

Revenue recognition principle

Matching Concept

[Income Statement]
1. Expenses are recognised when revenue is recognised
2. Expenses for goods delivered in future recognised in future
Matching concept

Conservatism Concept

[Income Statement] [Balance Sheet] Recognise revenues only when reasonably certain, but expenses should be recognised as soon as reasonably possible.

Last Updated: 9 Jun 2021