The Accounting Concepts: Entity Concept, Going Concept & Money Measurement - SS1 Accounting Lesson Note
There are several key accounting concepts that businesses use to guide the preparation and presentation of financial information. These concepts are essential for businesses to produce financial statements that are accurate, reliable, and meaningful to users. By adhering to these concepts, businesses can ensure that their financial statements are prepared in a consistent and understandable manner, and provide useful information for decision making. These accounting concepts include:
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Entity concept: This concept treats the business as a separate entity from its owners, meaning that its financial transactions are separate from those of its owners.
Going concern concept: This concept assumes that a business will continue to operate into the foreseeable future, and its financial statements should reflect this assumption.
Monetary unit concept: This concept assumes that only monetary transactions should be recorded in a business's financial statements, and non-monetary transactions should be excluded.
Cost concept: This concept assumes that assets should be recorded at their historical cost, rather than at their current market value.
Matching concept: This concept requires that expenses be matched with the revenue they generate, in order to accurately reflect the profitability of a business.
Accruals concept: This concept requires that revenue and expenses be recorded when they are earned or incurred, rather than when payment is received or made.
Consistency concept: This concept requires that accounting methods and practices be consistent over time, so that financial statements can be compared across periods.