The Accounting Principles, concepts and conventions form the basis for how business transactions are recorded. A number of principles, concepts and conventions are developed to ensure that accounting information is presented accurately and consistently. Some of these concepts are briefly described in the following sections.
Revenue Realisation
According to Revenue Realisation concept, revenue is considered as the income earned on the date, when it is realised. As per this concept, unearned or unrealised revenue is not taken into account. This concept is vital for determining income pertaining to an accounting period. It reduces the possibilities of inflating incomes and profits.
Matching Concept
As per this concept, Matching of the revenues earned during an accounting period with the cost associated with the respective period to ascertain the result of the business concern is carried out.
This concept serves as the basis for finding accurate profit for a period which can be distributed to
the owners.
Accrual
Under Accrual method of accounting, the transactions are recorded when earned or incurred rather when collected or paid i.e., transactions are recorded on the basis of income earned or expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at the time of sale and treats the bill amount as revenue, even though the payment may be received later.
The cash basis of accounting is a method wherein revenue is recognised when it is actually received, rather than when it is earned. Expenses are booked when they are actually paid, rather than when incurred. This method is usually not considered to be in conformity with accounting principles and is, therefore, used only in select situations such as for very small businesses.
Going Concern
As per this assumption, the business will exist for a long period and transactions are recorded
from this point of view.
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Accounting Period
The users of financial statements required periodical reports to ascertain the operational and the financial position of the business concern. Thus, it is essential to close the accounts at regular intervals. viz., 365 days or 52 weeks or 1 year is considered as the accounting period.
Accounting Entity
According to this assumption, a business is considered as a unit or entity apart from its owners, creditors and others. For example, in case of a Sole Proprietor concern, the proprietor is treated to be separate and distinct from the business, which he controls. The proprietor is treated as a creditor to the extent of his capital and all the business transactions are recorded in the books of accounts from the business stand point.
Money Measurement
In accounting, only business transactions and events of financial nature are recorded. Only transactions that can be expressed in terms of money are recorded.
