Accounting concepts are basic assumptions on which we base our accounting records. They are the things that we assume but in certain cases may not be correct.
For example, one of the common assumptions is, the money has a stable value. We all know that this is not really correct because the inflation continuously erodes the value of monetary units, yet it would be tedious and of no great value to keep amending the accounting records on the basis of an ever-changing value of the monetary unit.
Hence, we assume that, the money has a stable value. Everyone accepts this assumption and all accounting records and statements prepared on the basis of this assumption are generally accepted by all concerned. In this fact – namely acceptance by all concerned – lies the importance of adhering to these accounting concepts or assumptions.
The more common accounting concepts are given below:
- Cost concept of accounting
- Business entity concept
- Money measurement concept
- Going concern concept
- Dual aspect of accounting concept
The term accounting principles refer to rules that have emerged from the use of basic accounting concepts. Adherence to these rules ensures that accounting records are maintained on more or less the same basis by all business units and can, therefore, be relied upon and used for comparison.
As a business language accounting must be simple to understand for the people who own or manage the business affairs. So to achieve that purpose, inventions of such standards were made which would be uniform, scientific and easily adaptable for all. These standards are termed as Accounting Principles.
If these principles were not made, there would be a disastrous situation as various accountants would have practiced accounting in their own terms and conditions. This would have also made these practices difficult for people attached to business affairs to understand them. Uniformity would have also been missing. So these principles are playing a very important role in making, accounting practices uniform, scientific and easily adaptable.
Therefore it becomes imperative that these principles should be followed while measuring business routines which may include incomes, expenses etc. Thus the rules of action or conduct which are adopted by the accountants universally are termed as “Accounting Principles. ”
These rules have been evolved over a long period of time and represent the collective wisdom of accounting history.
The following are more significant accounting principles:
- Principle of objective evidence
- Accounting period principle
- Matching principle
- Accrual principle
- Conservatism or prudence principle
- Consistency principle
- Materiality principle
- Principle of adequate disclosure