Basic Accounting Concepts | Entity | Money Measurement | Going | Period

 

 

 

Basic Accounting Concepts | Business Entity | Money Measurement | Going | Accounting Period | Cost | Matching

Generally Accepted Accounting Principles (GAAP),

Financial Accounting Standard Board (FASB),

International Accounting Standard (IAS),

Nepal Accounting Standard (NAS),

Indian Accounting Standard (IAS),

Chartered Accountant Board are the major accounting rules and principles creators.  

While recording, financial transactions, we must follow the principles of above committee and boards.

The rules commonly accepted by the accounting professional are general guideline for preparing account.

These principles are also known as basic accounting concepts or assumptions.

Some accounting concepts are given below:

 

BUSINESS ENTITY CONCEPT

According to business entity concept, business and business owner are two separate and distinct entities.

This concept states all the business transactions are recorded from the view point of business.

If transactions are mixed, the true financial information cannot be shown.

Expenses paid for business and owner is separate.

The following examples clear this concept:
Insurance premium is paid for business owner is drawings; it is deducted from capital.

Insurance premium is paid for business is business expenses; it is debited in profit and loss account.

 

MONEY MEASUREMENT CONCEPT

According to money measurement concept, only monetary terms are recorded.

Monetary means related to money.

It ignores those transactions that cannot be expressed in-term-of money.

In other word, this concept does not record non-monetary transactions.
The following examples clear this concept:
Production has stopped due to load-shedding; it is loss for company but this concept does not record it.

In accident, a worker died; it is compensation loss for company but this concept does not record it.

 

 

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GOING CONCERN CONCEPT  | GOING-ON CONCEPT

According to going-on concern concept, business will continue for long-time.

The life of businessman is limited but life of business is unlimited.

Most of the businesses are more than 100 years in the country as well as abroad.

Under this concept, if the owner of the business dies business goes-on continue.

In other words, the death of owner does not affect business running.

The following examples would helpful to clear this concept:
Founder of Reliance Group, Mr Dhiru Bhai Ambani has died but Reliance Group is running-on.

Founder of Chaudhary Group, Mr Bhuramul Chaudhary has died but Chaudhary Group is running-on.

 

 

ACCOUNTING PERIOD CONCEPT

According to accounting period concept, the whole life of the business is divided into one year (12 months).

This period is known accounting period concept.

Generally time is 12 months but at the time business purchase, this time may be different.

Time is divided to prepare financial statement.

This time may be:

Calendar year 1^st January 2020 – 31^st December 2021
Financial year 1^st April 2020 – 31^st March 2021
Middle year 1^st July 2020 – 30^th June 2021

 

REVENUE CONCEPT  | REALIZATION CONCEPT

According to this concept, revenue is realized (earned) when goods are transferred to buyer from seller/vendor.  

And service is provided to client from expert.

It may be either cash or credit.

According to this concept:

Revenue is not revenue till it is received.

In cash sales, cash is realized immediately but when goods are sold on credit, revenue is realized later.

Revenue should be considered as earned when it is realized.

If credit sales amount is not received, it is bad debts.

 

 

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COST CONCEPT

According to this cost concept as possible as we should write value of assets at actually received or spent.

Suppose: ABC Traders has purchased motor bike for business purpose at $180,000 before one year ago.

Firm charges depreciation 15% p.a.

        Purchase value of bike                                         $180,000

        Less: Depreciation ($180,000 @ 15%)        − $27,000

                                      Book value                                $153,000

But market value of bike is $140,000. In such a condition, we should not write its value $140,000.

We must write $153,000 in account.

Value of assets is affected due to price level chance.

It is affected by inflation and deflation of money.

 

MATCHING CONCEPT

According to matching concept, we should compare incomes or expenses for an accounting period.

Suppose: current accounting year is 2020.

·          Firm has received advance $200,000 to supply goods for 2021 AD.

·          Firm has paid prepaid insurance $12,000 for the year 2021 AD.

In above examples, advance $200,000 is not income for current year.

$12,000 is not expenses of current year.

Both amounts must be adjusted for actual profit.

The expenses for an accounting period should be compared or matched with the revenue of that period.

Otherwise, firm cannot find-out actual net profit or loss.

The expenditure incurred for generating revenue in the future should not be taken as expenses for current period.

 

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Click on link for YouTube videos CHAPTERS OF CLASS 11

 

ACCOUNTING EQUATION  http://tiny.cc/c89jkz

BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz

BASIC JOURNAL ENTRIES http://tiny.cc/8aakkz

JOURNAL ENTRY AND LEDGER http://tiny.cc/caakkz

LEDGER http://tiny.cc/haakkz

SUBSIDIARY BOOK http://tiny.cc/399jkz

CASH BOOK http://tiny.cc/889jkz

TRIAL BALANCE & ADJUSTED TRIAL BALANCE http://tiny.cc/c59jkz

BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz

DEPRECIATION http://tiny.cc/ugakkz

FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz

ADJUSTMENT IN FINAL ACCOUNT http://tiny.cc/keakkz

CAPITAL AND REVENUE http://tiny.cc/peakkz

SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz

NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz

GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz

GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz

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