(a) What is Accounting concept? (b) Explain the following accounting concepts: (i) Business Entity Concept (ii) Accrual Concept (iii) Going Concern Concept (iv) Consistency Concept(v) Periodicity Concept (vi) Historical Cost Concept
Explanation
(a) Accounting Concepts: Accounting concepts are the assumptions/principles/practices/rules/guidelines; that form the basis for the preparation and disclosure of items in the financial statements.
(b)(i) Business Entity Concept: This concept means that the affairs of a business are to be treated as being separate from the personal affairs of its owner. (ii) Accrual Concept: This concept means that revenues and expenses are recognized and included in the financial statement as they occur and not as they are paid or received (iii) Going Concern Concept: This concept means that the business will continue to operate for the foreseeable future unless there is evidence to the contrary. (iv) Consistency Concept: This concept means that once an accounting method or procedure has been chosen, it should not be changed unless it is deemed necessary. (v) Periodicity Concept: This concept means that financial statements should be prepared at regular intervals (usually one year) to measure the entity's performance. (vi) Historical Cost Concept: This means that the value of assets of a business should be shown at the cost of acquisition and not at the values which are expected to be earned or the current market value.