Accounts and Finance
Accounts Theory

Types of Accounting Concepts

  1. Business Entity Concept :- Business is separate from owner personal expenses Income assets & Liabilities of the owner are recorded.

  2. Money Measurement Concept :- Only monetary transactions are recorded also sales purchase etc are recorded in terms of accounts and not in quantity.

  3. Going Concern Concept :- The books of accounts are prepared with assumption that business will continue for infinite years in future. Hence assets & liabilities are recorded at historical value and current market value.

  4. Accounting Period Concept : -  It means that books of accounts have to be regularly prepared at fixed intervals of times. As per companies Act & Income tax accounting period is 1 year for listed companies books of accounts in prepaid every 3.

  5. Cost Concept : - The assets of firm / Co. recorded at their total cost. Cost includes the purchase price and all other expenses like installation cost, freight & Carriage.

  6. Dual Aspects Concepts : - It means every transaction has double effects.

Example Furniture Purchased

Furniture A/C              Dr.

            To Cash

(In this furniture is increasing & Cash is decreasing)

  1. Revenue Recognition Concept :- Revenue is to be booked when the legal rights to receive it arises on accrued basis & not on receipts basis.


  1. Matching Concept :- It means that expense for the period should be match with the revenue for the period to calculate profit for the period. If the revenue or expenses are not of the period they should be booked as prepaid or prior period.


  1. Full Disclosure Concept :- All material are relevant facts regarding the financial performance of an enterprises should be fully disclosed. This is done by making notes to accounts. It is specially important in case of companies where person holding business (Shareholders) are different from person running the business directors.


  1. Consistency Concept :- Accounting methods & Policies similar to those followed in previous period. This is important to ensure comparisons between two business or periods.


  1. Conservatism Concept :- We should be prudent while recording expenses . Income should not be booked if there is no reasonable certainty regarding their receipts . However expenses should be recorded even it has a remote possibility.


  1. Materiality Concept :- Accounting should focus on important / material facts is major income & expenses of the business. Those facts are materials which influence the decision of stakeholders.

  2. Objectivity Concept :- Accounting should be free from any bias transaction should have supporting vouchers & invoices which can be verified.   

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.