Question

There are other basic accounting concepts that affect accounting for entities. List and describe the five concepts' impact on the accounting process.

Answer 1

five concepts' impact on the accounting process.

1. Cost Concept

Cost concept states that all the assets are recorded in the books of accounts at the Purchase price which will include cost of purchase, logistics and installing. They are not recorded at its market price. It means that fixed assets like plant and machinery, furniture, building, etc are recorded in the books of accounts at a price paid for them.

2. Duality Aspect concept

This concept has an assumption that every transaction has a dual effect, i.e. it affects two accounts in their respective opposite sides. Therefore, the transaction should be recorded at two places. Both the aspects of the transaction must be recorded in the books of accounts. For example, Asset purchased for cash has two aspects which are (i) Giving of cash (ii) Receiving of Assets. These two aspects are to be recorded.

3. Realisation Concept

This concept states that revenue from any business transaction should be included in the accounting records only when it is realised. The term realisation means creation of legal right to receive money. Selling goods is realisation, receiving order is not.

4. Money Measurement concept

This concept assumes that all business transactions must be in terms of money, in the currency of a country. In India all transactions are in terms of rupees, in The United Sates in terms of Dollars and likewise.

5. Accounting Period concept

All the transactions are recorded in the books of accounts on the assumption that profits on these transactions are to be ascertained for a specified period. This is known as accounting period concept. Thus, this concept requires that a balance sheet and profit and loss account should be prepared at regular intervals.