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 assumption is that 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 refers to rules that have emerged from use of the 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.
These rules have been evolved over a long period of time and represent collective wisdom of accounting history.
The following are more significant accounting principles: