Question

Assess the importance and meaning of the fundamental accounting concepts

Answer 1

Organisation's operations varies from enterprise to enterprise in an economy. So as to maintain uniformity and consistency in preparing the financial statements certain pronciples are followed in order to promote comparison. So they are of utmost importance in the economy

Certain accounting concepts that are followed are :

Business entity concept, money measurement concept, going concern concept, cost Concept, duality, accrual, matching etc

Business entity: business and entity are two separate entities and thus business transactions and personal transactions are recorded separately. As per this concept, accounting records in the process of book keeping must be made from the point of business and not the owner.

Money measurement concept : all the business transactions must be in the currency of the country in which the business operates. (e.g INR- India, USD- USA  

Going concern : as per this concept all the business transactions are recognised in the books of accounts based on the Concept that business will continue its operations for an indefinite period of time. Thus depreciation is charged on the fixed asset based on this concept.

Cost : all the assets are recorded in the books of accounts at their purchase price and not its market price or fair value. That means the business transactions will be recorded only if price have been paid by the business.

Duality : this is the very basis of recording business transactions. Every transaction affects two accounts and is recorded at two places as per the following equation :

Assets= liabilities + capital

Accrual : business transactions are recognised when they become due and not when actually realised. Thus expenses and revenues are recognised in the accounting period when actually become due.

Matching : as per this concept revenues and expenses incurred to earn the revenues must be recognised in the same accounting period. And thus all the debit items must be equal to credit items.

Do give your feedback ! Happy learning :) :)