THE BASIC CONCEPT OF ACCOUNTING INFORMATION

THE BASIC CONCEPT OF ACCOUNTING INFORMATION

The Entity Concept: accounting information is prepared from the point of view that every economic unit, regardless of its legal form of existence is treated us a separate entity from parties having proprietary or economic interest in it. Thus, the business and the owner (s) are considered completely separate. This is so such that the business will always be treated by the accountant on its own merit.

THE MONEY MEASUREMENT CONCEPT
This convention states that the accountant only records those facts that are expressed in money terms. Any facts, however relevant they may be to the user of the financial information is ignored by the accountant if they can not conveniently by expressed in money terms. It is often that the greatest asset on effective and efficient business possesses is the work force. So why does the work force never appear on a business balance sheet? The short answer is that it would be extremely difficult to quantify this asset and other resources in money terms. So the accountant does not bother to try. Facts and outcomes that cannot be expressed in money terms are ignore.

 THE GOING CONCERN CONCEPT
This concept states that in the absence of evidence to the contrary it is assumed the business will continue to indefinite future. This concept has a major influence on the assumptions made when evaluating a particular item in the balance sheet. For example, the convention allows us to assume that stock will eventually be sold in the normal course of business i.e. at normal selling price. Perhaps, even more obviously it allows for the principle of depreciation. If an item of plant is depreciated over ten years, when we are assuming that the plant will have a useful life to the business of ten years. It is worthy of note that the going concern concept does not say that the business is not going to heep being profitable into the indefinite future. It merely says or assumes that the business will manage not to collapse altogether.

THE HISTORICAL CONCEPT
The historical concept holds that cost is the appropriate basis for initial account recognition of all assets acquisition, service rendered or received expenses incurred, creditors and owners interests and it also holds that subsequent to acquisition values are retained throughout the accounting process. The historical cost concept does not always receive the new universal support of earlier years.

THE PERIODIC CONCEPT
It is a well known fact that the result of a business unit cannot be determined with precision until its final liquidation, the business community and users of financial statements require that the business be divided into accounting periods usually one year and that the charges in position be measured over these period.

THE DUALITY CONCEPT
This may be regarded as a formalization of the basis of double entry. It states that in relation to any one economic event, two aspects are recorded in the account namely:
a. The source of wealth.
b. The form is takes (its application). The concept further states that these two aspects always equal to each other.

THE MATCHING CONCEPT
This concepts holds that for any accounting period the earned revenue and all the incurred costs that generated that revenue must be matched and reported for the period if revenue is carried over from a period or deferred to a future period all elements of costs and expenses is relation to the revenue are usually carried over or deferred as the case may be.

THE CONSISTENCY CONCEPT
Usually, there is more that one way in which an item may be treated in the accounts, without violating accounting principles. The concept of consistency holds that when a company selects a method, it should continue (unless conditions warrant a change) to use that method on subsequent periods so that a comparison of accounting figures over time is meaningful.

THE REALIZATION CONCEPT
The concept establishes the rule for the periodic recognition of revenue as soon as:
a. It is capable of objective measurement.
b. The value of assets received or receivable in exchange is reasonably certain. It is the view that revenue can be recognized at various points for example, when goods we produced, when goods are delivered and the owner has assumed liability or when the transaction is completed choice, in most cases is an industrial norm and depends on which of the points is the critical even only when the event is passed can revenue be legitimately recognized.