Accounting Principles, Concepts and Conventions
The Accounting Principles, concepts and conventions form the basis for hcw business transactions are recorded. A number of principles, concepts and conventions are developed lo ensure that accounting information is presented accurately and consistently. Some of these concepts are briefly described in the following sections.
Revenue Realization
According to Revenue Realization concept, revenue is considered as the income earned on the date, when it is realized. As per this concept, unearned or unrealized revenue is not taken into account This concept is vital for determining income pertaining to an accounting period. It reduces the possibilities of inflating incomes and profits
Matching Concept
As per this concept. Matching of the revenues earned during an accounting period with the cost associated ed with the respective period to ascertain the result of the business concern is carried out This concept serves as the basis for finding accurate profit for a period which can be distributed to the owners
Accrual
Under Accrual method of accounting, the transactions are recorded when earned o incurred rather when collected or paid i.e, transactions are recorded on the basis of income earned or expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at the time of sale and treats the bill amount as revenue, even though the payment may be received later
N.B- (The cash basis of accounting is a method wherein revenue is recognized when it is actually revenged, rather he when its reined Expenses are booked when they are actually paid, rather than when incurred This method is usually not considered to be in conformity with accounting principles and is, therefore, used only in select stations such as for very small businesses)
Going Concern
As per this assumption, the business will exist for a long period and transactions are recorded from this point of view.
