Accounting – Accounting Concepts

We wrote about two basic concept of accounting, i.e. going concern and business entity.

The fourth basic concept is “Cost concept”. All transactions considered at cost (the value actually transacted in)

So, a transaction may actually be of a higher value, but needs to be recorded at the value it has been transacted in. This concepts restricts arbitrary values being assigned to transactions. This becomes critical in arenas where capital transactions are entered into, especially those which result in acquisition of assets. Thus this ensures that the transacted value is recorded in the books of accounts and no notional values are used.

Hence if you buy a commercial property for Rs. 4,000,000, based on your negotiation capabilities, whose market value is Rs. 5,000,000, you would record it at Rs. 4,000,000 only.

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