Accounting Concepts

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The Business Entity Concept
Money Measurement Concept
Going concern concept
Accrual basis concept
Consistency Concept
Materiality and aggregation concept
Concept on Prudence
Matching Principle
Dual Aspect
Relevance Concept

Financial accounting has a number of conservative laws which have been considered over the years and all the possible identifiable rules are: Business Entity Concept, Money Measurement Concept, Going concern Concept, Accrual basis of accounting concept, Consistency Concept, Materiality and aggregation concept, Prudence, Matching Principle and Dual Aspect 1. The Business Entity Concept

It is the customary where you strictly distinguish all the matters of any business from its owners ‘personal affairs. Practically it is difficult to distinguish shortly what is business and what is privet particularly in the case of partnership entities with limited companies. On the other hand it is a distinct legal difference between owner and business. Both of them differ to the extent of controlling proprietor’s effect upon an industry though in all other forms the owners’ personal transactions are not associated with the accounts of the business and the transactions. In regards accounting purposes it is not relevant and the business entity convention is applicable to all business. Example

Sohel has 6 cars in his garage he has hired for £6000 every month and has sets up a single – member accounting exercise using one car for the function. In the business entity concept, 1/6th or £1000 would be charged for the business as all the other 5 cars and £5000 value of rent will be spent in personal reason.

2. Money measurement.
Money measurements concepts are such transactions which could easily be counted, giving a financial worth which requires to be recorded in the books of account even though over a period of time the value of money changes. Money should not be compared during inflation and deflation periods because usually price is misleading as it fall and rise at any given time. In other words, it buys more goods when prices go down and fewer goods when prices go up. Example

Workers’ competence and skill Skills cannot be certified by financial worth and should not be documented in the balance sheet as asset. But the dealings connected with workers could be reliably measured for instance expenses; salaries and pension obligations will be documented income statement.

3. Conception going concern

Estimation of possessions used in a trade is supposed that irrespective of the chosen accounting period the business is a continuing entity and it will operate for predictable prospect, otherwise it will be proved untrue. Example

Merchant bank of Ghana is in severe monetary difficulty while the government is not interested to bail it out .The bank is not a going concern even the directors have passed decree to liquidate the companies. 4.Accrual basis

The effectiveness of financial accounting in sequence is vital where trade dealings are documented the time it happens not when concerned payment is made or received. This concept makes the difference between the right to receive cash and the receipt of cash and lawful compulsion of paying cash, as practically there is usually no chance in time of cash movement. Leading on from this, the approach to accounting that is based on the accruals assumption is normally referred to as accruals accounting. Example, the industry records its utility bills when it receives them, not when it pays bills since the facility has already been used. When the payment will be made the company will ignore it. 5.Consistency

This concept states that one accounting method adopted must be applied consistently in future. A business must refrain from changing its accounting policy unless on reasonable grounds can be understood by this concept. For any valid reason if the accounting policy is changed, business should...
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