In this blog, our Accounting Assignment Help experts have illustrated the five basic concepts of accounting that you need to keep in your mind if you want to secure excellent grade in accounting subject. Our Accounting Assignment experts have explained each concept in brief so that you get a clear idea.
Concept of Money Measurement-
The first one on our Accounting Assignment Help team’s list is money measurement. According to money measurement concept, you need keep a record of only those transactions while accounting which can be represented in terms of their monetary value and exclude those that cannot be quantified. Every business transaction that takes place should always be mentioned in terms of money at all times. What this concept implies is that certain factors such as labor unrest, sales policies, etc. do not come under accounting even though they are relevant to the sound operation of a business.
Concept of Business Entity
Concept of business entity is important. Its aim is to make you understand that there is a difference between the business and the proprietor. This, in turn, means that the personal expenses of the proprietor should not be mixed into the account records of the firm he owns, as those are two separate entities. However, mention should be made of them. You should keep in mind that the role of the proprietor is restricted to being the creditor of the firm, one who provides capital for investment in the business concerned. This concept can help you to discover the earning capacity of the firm concerned.
Concept of Going Concern
This concept can give you an idea of the longevity of the business concerned. All businesses are technically supposed to last for an indefinable period. To make things easier for accounting, it is taken for granted that all firms (big or small) come under the purview of the going concern concept, wherein there is no concrete evidence to support that they will not last. However, this is only applicable for those businesses, which are making a profit. All reports on accounting are fashioned based on this concept.
Concept of Cost
The concept of cost entails the recording of all fixed assets at the prices they were purchased. The price that the firm paid to get these assets is defined as cost. This future recording of expenditure on these assets is based on this initial cost. So at the end of every year, the price of the fixed asset in the accounts record would be constant. However, the amount changes in the balance sheet and is represented as at its cost price minus the depreciation, and this figure is known as book value. It is important to note here that if a company has not purchased its assets, then they will not feature in its accounting records.
Concept of Dual Aspect
This one is also referred to as the concept of accounting equation, and its purpose is to establish the fact that every business follows the dual aspect model of transaction. These dual aspects are:
Production of benefit
The offering of the benefit
Let us explain further. For example, when a transaction takes place, there are two parties involved – the giver and the receiver. Both these parties benefit in the aftermath of a transaction. The giving party gets money (while foregoing his goods) and the receiving party gets the desired item (while parting with his money). This implies that an equal transaction takes place between the giver and the receiver, and will entail a double entry into the accounts record.
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