— Kishore V, SME and ACW at Edumarz.
The fundamental accounting concepts are broad working standards for all accounting activities produced by the accounting profession and are referred to as the fundamental ideas or basic assumptions underlying the theory and practice of financial accounting. The most significant concepts are presented below.
• Business entity;
• Money measurement;
• Going concern;
• Accounting period;
• Cost
• Dual aspect;
• Revenue recognition;
• Matching;
• Full disclosure;
• Consistency;
• Conservatism;
• Materiality;
• Objectivity.
Business entity concept:
This idea implies that a business unit is distinct from its owner or owners, i.e., the person who provides it with funds.
Accounts are made from the perspective of the business, not from the perspective of the owner, based on this principle. As a result, the firm is responsible to the owner for the capital invested.
Only commercial transactions are documented in the books of accounts according to this approach.
The owners’ personal transactions are not kept track of.
However, their interactions with the company, such as capital contributions or cash withdrawals for personal purposes, will be documented in the books of accounts.
It signifies that the company possesses assets and owes for its liabilities.