Accounting – Accounting Concepts
We listed the three golden rules in the last post
Coming to the accounting concepts, there are primarily seven concepts which are critical. Accounting is related to business, and recording, classification, summarization and presentation of the affairs of a business.
Let me define this in one sentence – We record all transactions of an ongoing business, as distinct from the individuals conducting it, measurable in monetary terms, at cost, using a double entry mechanism, at the point of realization or accrual.
How does this translate into seven concepts?
- Going Concern – The business entity is in business as usual mode
- Business Entity – The business is treated as an entity separate from its owners
- Monetary measurement – Should be measurable in money
- Cost concept – All transactions considered at cost (the value actually transacted in)
- Dual-Entry – The records should consider both the aspects of a transaction
- Realization – Each transaction should have actually been executed and the related money realized / realizable
- Accrual – If money has not been realized, it should be capable of being accrued as payable / receivable
In the next few posts, we will detail these out further.
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