These are the basic or fundamental principles or assumptions on which the financial accounts of a business enterprise are prepared and presented. They are so basic that if any of them is altered, the entire nature of financial accounting would change.
The following are the various accounting concepts:
1. Business Entity Concept
This concept states that the business organization should be treated as a separate entity from the owner. i.e. recognizing the business as a separate and district entity, only things that affect the business must be recorded.
2. Going Concern Concepts
This concept assumes that the business will continue to operate for an indefinitely long period of time. In most cases, the accounting system will treat value on the assumption that the business will continue trading and operate in the future and not cease at the accounting date.
3. Realization Concepts
Income is considered or regarded to have been earned when the goods are dispatched to the customer and he incurs liability for them.
4. Accrual Concept
This concept states that revenues and expenses are recognized as they are earned or incurred and not when money is received or paid. The profit of a business will show the difference between revenues and expenses.
5. Money Measurement
This concept states that only transactions which can be expressed in monetary value cannot be included in the records .e.g information about good or bad management or poor morale prevalent among the staffers are not shown.
6. Cost Concept
This concept implies that the value of assets is shown at the cost of acquisition. The accountant cannot value items or assets in terms of the future returns it is expected to generate. The value in the books may not necessarily reflect the current value of the assets.
7. Dual Aspect Concept
This concept ensures that all transactions must have two aspects: One debit and one credit. In accounting, there must be a giver and receiver of value.
8. Matching Concept
This concept state that all expenditure incurred to generate revenue will be matched against the revenue generated to determine the net income or loss.
9. Objectivity Concept
This concept states that an objective picture of the business should be provided so that accounting statements are not influenced by the personal bias of the person preparing them.
10. Periodicity Concept
It is an acceptable norm within the business community and users of financial statements that the financial performance of companies should be divided into accounting periods, usually, one year and that changes should be measured over these periods.