Amity Business School

Accounting Principles
Accounting principles may be defined as those
rules of action or conduct which are adopted by
the accountants universally while recording
accounting transactions. Those rules of action or
conduct which are derived from experience and
practice and when they prove useful, they
become accepted as principles of accounting.
These principles can be classified into two
categories:
Accounting Concepts
Accounting Conventions

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Accounting Concepts: The term concepts

includes
those
assumptions
or
conditions upon which the science of
accounting is based.
Accounting
Conventions:
The
term
conventions includes those customs and
traditions which guide the preparation of
accounting statements.
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ACCOUNTING CONCEPTS

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SEPARATE ENTITY CONCEPT

In accounting, business is considered
to be a separate entity from the owner(s),
i.e. a business unit is separate and distinct
from the person who supplies capital to it
irrespective of the form of organisation.

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GOING CONCERN
CONCEPT
Going concept implies that the
business concern will continue operation
for the foreseeable future.
It is assumed that the business will exist
for an indefinite period of time and all
transactions are recorded from this point
of view.
It is also called continuity assumption
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ACCOUNTING PERIOD
CONCEPT
Also known as Periodicity assumption or
Time period assumption. The economic life
of an enterprise is artificially split into
periodic intervals which are known as
accounting periods, at the end of which an
income statement and position statement
are prepared to show the performance and
financial position.
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MONEY MEASUREMENT
CONCEPT
Accounting
records
only
monetary
transactions. Only those transactions and
events which are capable of being
expressed in terms of money are included
in the accounting records.

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COST CONCEPT
The cost concept implies:
An asset is ordinarily entered in the
accounting records at the price paid to
acquire it
This cost is the basis for all subsequent
accounting for the assets

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MATCHING CONCEPT
The matching principle provides the
guidelines as to how the expense be matched
with revenue.
In determining the net profit from business
operations, all costs which are applicable to
revenue period should be charged against that
revenue.
Accordingly, for matching costs with
revenue, first revenue should be recognized and
then costs incurred for generating that revenue
should be recognized.

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REALISATION CONCEPT/
REVENUE RECOGNITION

Revenue is recognized in the period in

which it is earned irrespective of the fact
whether it is received or not in that
period.

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ACCRUAL BASIS OF ACCOUNTING

Accrual basis of Accounting is a method of
recording transactions by which revenue, costs,
assets and liabilities are reflected in the
accounts for the period in which they accrue.
Also referred to as Mercantile basis of
Accounting.
CASH BASIS OF ACCOUNTING
Cash basis of Accounting is a method of
recording transactions by which revenue, costs,
assets and liabilities are reflected in the
accounts for the period is which actual receipts
and actual payments are made.
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