IGCSE Accounting OL – V 1.0 By Mohamed Abdou Etman – For more info Call 0111

4808 454

IGCSE Accounting OL – V 1.0 By Mohamed AbdouEtman – For more info Call 0111 4808

454

Accounting Concepts

The going concern concept

Accounts are prepared on the basis that the business will continue to operate for an indefinite period of time.

The matching concept

Costs should be offset against revenues from the same accounting period to ensure that the amount of sales for the year which are

unlikely to be paid are treated as an expense of that particular year.

Prudence concept According to this concept all the losses incurred or expected to be

incurred are to be taken in to account but not all anticipated profits to be taken into consideration while finding the profit. Similarly while

finding the value of closing stock, least of the two values i.e. Market price or Cost price is to be taken into account.

“Lower of the cost or net realisable value”. It is even used to ensure that the profit is not overstated and that the

asset of debtors in the Balance Sheet shows a more realistic amount.

The money measurement concept

Accounts only record information which can be expressed in monetary terms. This means that many factors which affect the performance of

a business will not appear in the accounting records.

The business entity concept The accounting records of a business are maintained from the

viewpoint of the business. The business and the owner of the business are regarded as being

separate entities. The personal transactions of the owner of the business are not

recorded in the accounting records of the business.

The historical cost concept

IGCSE Accounting OL – V 1.0 By Mohamed Abdou Etman – For more info Call 0111

4808 454

IGCSE Accounting OL – V 1.0 By Mohamed AbdouEtman – For more info Call 0111 4808

454

Assets are normally shown at cost price, and that this is the basis for valuation of the asset.

The duality concept

This states that there are two aspects of accounting, one represented

by the assets of the business and the other by the claims against them. The concept states that these two aspects are always equal to

each other.

Realisation concept This concept speaks about recording of only those transactions which

are actually realised. For example Sale or Profit on sales will be taken into account only when money is realised i.e. either cash is received

or legal ownership is transferred.

Consistency Concept If a company started using an accounting method, then it should not

be changed for another method unless the company would indicate the change in the method and its effects on the final accounts of the

company. e.g. if the company started to use straight line method for depreciation of noncurrent assets , it cannot be changed to the

reducing balance unless the effect on the net income and the

noncurrent assets would be disclosed with both statements.