(79)-SUMMARY ABOUT ACCOUNTING CONCEPTS

Summary about Accounting Concepts

In preparing financial statements, certain fundamental accounting concepts are adopted as a framework.
Two such accounting concepts are identified in financial reporting standards accounting policies as the bedrock of accounting.

• The going concern concept. Unless there is evidence to the country, it is assumed that a business will continue to trade normally for the foreseeable future.
• The accruals or matching concept. Revenue earned must be matched against expenditure incurred in earning it.

A number of other accounting concepts may be regarded as fundamental.

• The prudence concept. Where alternative accounting procedures are acceptable, choose the one which gives the less optimistic view of profitability and asset values.
• The consistency concept. Similar items should be accorded similar accounting treatments.
• The entity concept. A business is an entity distinct from its owners.
• The money measurement concept. Accounts only deal with items to which monetary values can be attributed.
• The separate valuation principle. Each component of an asset or liability must be valued separately.
• The materiality concept. Only items material in amount or in their nature will affect the true and fair view given by a set of accounts.
• The historical cost convention. Transactions are recorded at the cost when they occurred.
• The stable monetary unit. The value of the unit in which accounting statements are prepared does not changed.
• Objectivity. Accountants must be free from bias.
• The realization concept. Revenue and profits are recognized when realized.
• Duality. Every transaction has two effects.
• Substance over form. Transactions must be presented and accounted for in accordance with their substance and financial reality and not merely with their legal form.