- Accounting concepts and principles introductory
- The going concern notion
- The business entity concept
- Accruals basis of accounting
- Dual aspect concept
- Accounting period concept
- Materiality and Consistency
- Separate valuation principle
- Money Measurement Concept
Accounting Concepts And Principles Introductory
In preparation of financial information ,certain fundamental Concepts and principles are taken into consideration as a framework.
During the Preparation of those accounts , there should be an accounting treatments through which accounting principles and concepts are applied , the General Accepted Accounting Principles (GAAP) provides the standardized methodology for recording business transactions and events , so we have chosen to explain for you the most possible accounting principles and concepts which could be used to build up an accounting framework as Expressed below:
The going concern notion
The going concern notion signifies that the business has to continue working in a long period of time status towards future projection .
there should not be an intention to put the business into liquidation or stop operating
The business entity concept
This concept says that accountants and Financial Managers must take a business as a separate entity, distinct from its owners or officers .
Example. Suppose Mrs. Ketty initiated a business by investing Rwf 200,000. She purchased goods for Rwf 60,000 Office Chairs for Rwf40,000 and machinery of Rwf50,000. Rwf 50,000 remains in hand. It means that all that above are the assets of the business and not of the owner.
Accruals basis of accounting
The accrual basis states that , the accounting transactions and other events are recognized when they occur , while in the cash basis ,the transactions are recorded when cash has been received or paid. Transaction must be recorded and reported in the period to which they are related.
Dual aspect concept
From this Concept , every transaction has a dual effect, i.e. it affects two accounts in their respective opposite sides. the transaction should be recorded at two places.
For example : Goods Sold for cash has two aspects :
*Giving of Good (Decrease in Stock which is Asset of the business )
*Receiving of Cash (Increase in revenue which is Equity of the business
Accounting period concept
This concept states that all the transactions are recorded in the books of accounts on the assumption that profits on these transactions are to be determined for a specified period.
Also this concept requires that a balance sheet and profit and loss account should be prepared at regular intervals so that it will help for different purposes like, calculation of profit, determining Financial position, tax computation etc.
Materiality and Consistency
Under Materiality ,the only material items should appear in the financial statements and the items are material if their omission or misstatement would influence the decision of the primary users of the financial statements.
While consistency states that similar items should be accorded similar accounting treatment ,then in preparing accounts consistency should be observed where the same treatment should be applied from one period to another in accounting items because this will be helpful in comparing one period of accounting to another.
Separate valuation principle
In determining the amount to be attributed to an asset or liability in the balance sheet, each component item of the asset or liability must be determined separately.
Then after, the figures obtained from these separate valuations must be arrived in the Balance sheet.
For example, if a company’s stock comprises 100 separate items, esch will be evaluated separately; the 100 figures must then be aggregated and the total stock figure will be appearing in the Balance sheet.
Money Measurement Concept
The money Measurement state that , transactions recorded by the business in the books of accounts should expressed and measured in monetary value,
For example: If the entity pays the employee some salary then the payment of salary will be a transaction to be measured in terms of money, otherwise it is nothing of any sort.
End of Lecture