Accounting principles are the fundamental assumptions that underpin the accounting process. The following are some fundamental accounting concepts:
The Business Entity Concept states that the business has a different legal identity from the individual who owns it. The accounting process is carried out for the benefit of the business, not for the benefit of the individual who is doing the business. This idea applies to both for-profit and non-profit organizations.
Every transaction, according to the Dual Aspect Concept, has two effects. The core asset-liability relationship, in which assets equal liabilities, stays unchanged.
Going Concern Concept - This concept states that the company will be in operation for an indefinite amount of time and is unlikely to close down the firm soon. This has an impact on asset and liability appraisal.
The Accounting Period Concept divides an unlimited period of time into smaller time periods, each in the form of an Accounting period, to make the production of financial accounts periodically easier. The accounting period chosen is determined by factors such as the nature of the firm, legislative obligations, and so on.
The cost concept states that an asset should be documented at the cost at which it was purchased rather than the current market price of various assets.
Money Measurement Concept - According to this concept, only those transactions that can be represented in terms of money are recorded in accounting records. This is one of the most significant flaws in financial accounting and financial reporting.
Matching Concept - According to this concept, all expenses and costs spent during the accounting period, whether paid or not, should be matched with the money generated during the period when computing profits correctly.