Basic Accounting Concepts

What do you mean by basic accounting concepts?

Accounting has come to present status after a period of several hundred years. During this period certain accounting assumptions, concepts and conventions have emerged. Accountants universally in the recording, classification, summarization and reporting of the transactions follow these. Accounting assumptions, concepts and conventions are called Generally Accepted Accounting Principles (GAAP) since they have been commonly accepted by professional accounting world as general guidelines for preparing financial statements and reports. Thus accounting principles are rules of action adopted by accountants.

Accounting principles are man-made. Unlike the principles of physical and natural sciences, accounting principles are not eternal truths. They have been evolved over the years keeping in view their relevance, objectivity and feasibility. Accounting Standard Board (ASB) of the Institute of Chartered Accountants of India makes accounting rules in India. Knowledge of accounting concepts facilitates the learning of accounting, the language of business, by users of accounting information. The users of accounting information include shareholders, investors, lenders, suppliers of goods and services (creditors), customers, employees, government and its agencies and public at large.

List the basic accounting concepts.

The Institute of Chartered Accountants of India in its Accounting Standard-I (AS-I) has stated that going concern, accrual and consistency are fundamental accounting assumptions. For the sake of convenience all accounting concepts are discussed under two headings:

• Basic accounting concepts
• Accounting concepts related to income measurement

Basic Accounting Concepts are:

• Entity Concept
• Money Measurement Concept
• Going Concern Concept
• Cost Concept
• Dual Aspect Concept
• Full Disclosure Concept
• Objectivity Concept
• Accrual Concept

Accounting concepts related to income measurement are:

• The Time Period Concept (Periodicity Concept)
• The Revenue Recognition (Realisation) Concept
• The Matching Concept
• The Materiality Concept
• The Consistency Concept
• The Conservatism (Prudence) Concept