In Basic Accounting Concept ,there are some conceptual issues which needs to understand in order to lay a solid foundation on how accounting works.
Definition and introduction
The accountant and the accountant’s worldview may certainly include some useless characters staring at the formidable numbers piled up in unreadable columns.
However, there is a concise and easy-to-understand explanation for accounting.
These Basic Accounting Concepts are:
The Concept of Anticipation
Firstly This concept means a company which recognizes revenue, profit or loss based on cash received from a customer or at a different amount than is recognized when cash is paid to a supplier or employee. To do. The auditor only certifies financial statements for businesses prepared under the concept of accrual accounting.
The Concept of Conservatism
Secondly, Revenues are only recognized if they are reasonably certain to be realized, but costs are recognized faster if they are reasonably likely to be incurred.
Moreover, If a company chooses to use a particular accounting method, it must continue to use it.
This will ensure that you can compare financial statements prepared over multiple time periods.
The Concept of Economic Agents
Business transactions must be separate from their owner’s transactions. That way, your company’s financial statements will not mix personal and business transactions.
Going Concern Concept
Further more the financial statements are prepared on the assumption based on the business which continues to operate in the future. Under this assumption, revenue and expense recognition may be deferred to future periods when the company is still open.
The concept of matching shows that income and expenses incurred to earn income must belong to the same accounting period.
By doing this, you can ensure that someone viewing your company’s financial statements records all aspects of the transaction at the same time, as there is no deferral of expense recognition to a later reporting period.
Otherwise, you will need to record the transaction if the reader’s decisions in the company’s financial statements may change.
Due to such changes relatively it becomes important for smaller transactions to record.
So the financial statements are a comprehensive representation of a business’s financial results, financial position, and cash flows.
Dual Aspect Concept
This concept is at the guts of the whole accounting process. Accountants record events that affect the wealth of a specific entity.
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