Basic accounting concepts are an essential thing for a business person and accountant.
Do you know why?
Don’t worry, I am telling you why. If a person understands the basic concepts of accounting it assists you in making compelling predictions of a company depending on sales and cost trends in the past.
It also helps a business person to make critical smart decisions to run the business smoothly for a long time.
If you want to know more about accounting concepts and why they are important, keep scrolling on this article.
In this article, we will discuss some basic accounting concepts that an accountant or businessman should know to grow his or her business and why students need cost accounting assignment help. But before that, let’s understand accounting concepts.
Concepts of Accounting
These are the basic rules, prediction, and conditions to define the constraints and parameters in which accounting performs. In simple words, we can say that concepts of accounting are the generally accepted accounting principles that make the fundamental basis of the preparation of financial statements continuously. Here we are going to discuss the top 10 accounting concepts that are used widely by almost every business organization.
Top 10 Concepts of Accounting
Concept of Money Measurement- This concept implies the transactions that are recorded and evaluated in monetary terms. In another form, we can say that accounting books keep only financial transactions.
Concept of Entity- It helps you to understand that your business and you are not similar, and a business owner and owner are two different entities.
Concept of Accrual- In this case, accounting transactions are recorded on the basis of mercantile.
Concept of Cost- The cost concept refers to any asset that the entity records should be maintained at historical cost value(The acquisition cost of the asset).
Concept of Matching- This concept is associated with the periodicity and accrual concept. It implies that the time period for which income has been evaluated, the entity needs to account for expenses only based on that period. It denotes that the organization needs to record revenue and expenditure for the same time period.
Concept of Conservatism- According to conservatism, it does not identify future revenue, but the entity needs to provide for any expected losses or expenses.
Concept of Dual Aspect- Double-entry bookkeeping system highly relies on the dual aspect concept. In every organization, transactions have two aspects: debit and credit, and they need to record every transaction and give effect to both the elements of debit and credit.
Concept of Materiality- The items that have a significant economic impact on the business should be involved or shown according to the materiality concept.
Concept of Going Concern- The concept of going concerned is a prediction that the business will be having on an ongoing basis. According to this concept, accounting books are prepared so that the business can run smoothly for years.
Concept of Periodicity- This concept states that the business has to carry out the accounting for a definite time slot, generally the financial year. A financial statement’s time period may vary from monthly to quarterly and annually. It assists us in identifying any alteration that occurred over the period.
Importance of Concepts of Accounting-
Let’s discuss why accounting concepts are important for a business person.
- Its applications are used at every stage of a financial transaction recording of an entity.
- The generally accepted accounting concepts save time, energy, and effort for the accountants because the framework is already set.
- These concepts enhance the quality of financial statements and reports regarding the understandability, reliability, comparability, and relevance of such financial reports and statements.
Benefits of Concepts of Accounting
Accounting concepts are used in each type of business organization as it offers various benefits that are given below.
- We can get information about the assets and liabilities of the entity with the help of detailed financial information.
- Valuable information helps the entity to make an effective economic decision.
- Accounting concepts provide financial updates to the investors to determine the company’s financial position.
- It provides a clear understanding of how every business transaction has been recorded.
Drawbacks of Concepts of Accounting
Although accounting concepts offer various benefits, their drawbacks can’t be denied. Here we have listed some drawbacks of concepts of accounting below.
- It does not follow all the steps of financial transaction records.
- It increases the chances of misstatements and omissions.
- It is difficult to trace when and where the exclusion was introduced.
- Incorrectly reported financial transactions lead to issues in the analysis of financial information and interpretation.
Now, I hope it is clear to you what is concepts of accounting, their role in business, and their importance. In this blog we have discusses all the important aspects of accounting concepts and listed the benefits and drawbacks of these concepts. These concepts are the most used concepts in any business organization.
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