Accounting concepts mean and include those basic assumptions or conditions upon

which the science of accounting is based. The following are the important accounting
concepts:
Business entity concept: In accounting, business is treated as an entity different from the
proprietor. The transactions that take place affect the business the and not the proprietor.
This concept makes it possible to keep the business affairs strictly free from the effect of
private affairs of the proprietor.
Dual aspect concept. According to this concept every business transaction has a dual
aspect. For every credit there must be a corresponding debit and vice versa.
Accounting period concept: According to this concept, though the business is a
continuous affair the life of the business is divided into suitable accounting periods, say, a
period of one year each, sot that the transactions of this period can be analysed and
summarised to ascertain the net results of the business.
Going concern concept. This concept assumes that the business will continue for a long
time to come and it is not likely to be liquidated in the near future. Hence, the
accountants while valuing the business assets do not take into account the realisable value
or the present market value of the asset. Assets are valued at the cost at which they were
originally acquired less depreciation till date, which is charged on the basis of the original
cost only and not on the market value.
Cost concept: This concept is based on the Going Concern Concept According to this
concept, assets acquired are ordinarily entered in the accounting books at the cost at
which they are acquired and this cost is the basis for all subsequent accounting for the
asset. The market value is immaterial for accounting purpose since the business is not
going to be liquidated but it is to be continued for a long time to come
Money measurement concept: According to this concept, accounting records only those
transactions which can be expressed in terms of money. Events or transactions which
cannot be expressed in terms of money cannot find a place in the books, however
important they may be. Fro example, the skill of the manager, the good employeremployee relationship etc., cannot be shown in the books of the business. this makes the
financial statements incomplete.
Realisation concept: According to this concept, revenue is recognised only when the
sale is made, whereas strictly speaking revenue earning is only a gradual process and its
starts when the raw materials are purchased for production and ends with the sale. If not
sale takes place, no revenue is considered. however there are certain exceptions to this
concept. EXamples HIre purchase, Contract accounts, etc.
Rupee value Concept: This concept assumes that the value of the rupee is constant. In
fact due to inflationary pressures, the value of rupee goes on declining. the declining
value of rupee is ignored for accounting purposes and accounts are prepared on the basis
of historical costs.
Accounting conventions:
Convention of Conservatism: According to this convention, accountants are expected to
be conservative in their approach while preparing the accounts and they are expected not
to take into account anticipated profits but provide for all possible anticipated losses
In other words the accountant has to follow the policy of playing safe. This practice of the
accountants acts as a guard against as a guard against the personal judgement of the
accounting in preparing the accounts and statements. It is only on account of this

convention, the inventory is valued at cost price or market price whichever is lower.
Similarly provision for bad and doubtful debts is made in the books before ascertaining
the profit. In contract business only a reasonable amount of profit shown by the books
alone is taken as profit year after year and not the entire book profit.
Convention of consistency: According to this convention, accounting practices should
remain unchanged for a fairly long time and should not be changed unless it becomes
absolutely essential to change them. For example, if a particular method of charging
depreciation is followed for a particular asset, the method should be consistently
followed. However, consistency does not forbid introduction of improved accounting
techniques or methods. This convention aims ata a continuity in the accounting methods
and practices followed so that comparison may be meaningful.
Convention of full disclosure: Accounting reports should give full disclosure of the
information which they are expected to provide. Accounting reports are meant for the use
of various parties and these reports would not serve the purpose unless they disclose fully
what is material. The company law itself make it obligatory on the part of companies to
prepare their Profit and Loss Account and Balance Sheet in the prescribed form so that
maximum possible disclosure can be made. The practice of giving footnotes references,
and parentheses in the statements is in pursuant of this convention only.
Convention of Materiality: Accountants should report only what is material and ignore
insignificant details while preparing their final accounts and Balance Sheet. If this is not
done, the whole accounting process would become cumbersome and meaningless. What
is material depends upon the circumstances and the discretion of the accountant. it is
because of this convention, the cost of an asset or its written down value alone is shown
in the balance sheet and not the other information about the asset.
Materiality is a subjective term and information becomes material if the knowledge of it
would influence the decision of the informed investor. According to Kohlers Dictionary
of Accountants Materiality means the characteristic attaching to a statement, fact or item
whereby its disclosure or method of giving it expression would be likely to influence the
judgement of a reasonable person.