Historical cost concept: - Assets are recorded on the cost at which they are
actually purchased.
The money measurement concept: - Everything must be recorded in terms of
money.
The business entity concept: - Business is a separate legal identity other than its
owner. Business is something else and its owner is some thing else.
The dual aspect concepts/Duality: - All transactions have two effects one Dr. and
other Cr.
The time interval concept: - Books of accounts are made for a specific time
period which is usually one year. E.g., from January to December.
Accrual basis: - Transactions are recorded irrespective of payments are received
or not
Going concern: -The business will continue its operations in upcoming twelve
months.
Materiality: -Amount is said to be material if it can affect the decision making of
books of users of books of account e.g., Company A have a profit of 100,000 and
the other company have profit of 1200,000 if 50,000 is mis represented in both it is
material for the company A but not for the Company B.
Substance over form: - Transactions and other events must be accounted for and
presented in accordance with their substance and economic reality and not merely
their legal form. This is referred to as substance over form. E.g., the car does not
belong to the business until all the instalments on the lease have been paid
Prudence: - Income and Assets must not be over stated and liabilities and
expenses must not be under stated.
Matching: - Income of the same year and expense of the same year must be
attached to that year.
Consistency: - Accounting policies and methods must be consistent e.g., if you are
using straight line method you need to be consistent about that you can’t switch to
reducing balance method and then straight-line method again and again
Realization: - Transactions are realized when the are actually happened weather
cash is paid or not