Accounting concepts are the principles, measurement, techniques, and standard of presentation used in financial statements. These concepts are derived from generally accepted accounting principles (GAAP), adopted by accounting the practice. The major principles of accounting are as follow:
Principles of accounting
1. Business entity concept: This is one of the major concepts, according to this concept business and the owner is not the same but separate and one business separate from other though both business owners are the same.
2. Going concern concept: This concept requires accountants to prepare financial statements under the concepts that the business will continue to operate instead of being put up for sale or closed.
3. Measuring unit concept: According to this concept, a monetary unit (such as taka or dollar) is to be used instead of physical or another unit measurement to measure and record of entity’s economic activity.
4. Accounting period concept: A business may run for an indefinite period of time. So we need to prepare financial statements after dividing that indefinite period to a small period of time, generally a year. This period is called the accounting period.
5. Cost concept: The cost concept states that assets are initially recorded at the amount paid to acquire the assets.
6. Matching concept: According to this concept, expenses are to be matched with revenue to determine net income.
7. Revenue realization concept: According to this concept revenue might be recorded after services given and goods sold. There are two principles in revenue recognition: the revenue must be earned and realized.
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