There are four basic accounting concepts. The concepts define and explain the guidelines that must be followed when handling business accounts. Below are the four basic accounting concepts and a brief summary of each concept
. Accumulation Concept
According to the Accrual Accounting Concept, transactions from transactions and income from transactions are recognized when they occur, even if the funds or assets have not actually been exchanged between the entities involved in the transaction. For example, a dentist Dr. Payne orders and receives 6 months of toothpaste for $ 500 in January. Even if he does not pay for the toothpaste in February, Dr. Payne still fixes the $ 500 liability in January and does not wait until February because he owns the goods and has to pay them to the supplier. The supplier of the tour is counted as selling toothpaste to Dr. Payne.
2. Consistent concept
The accounting officer used a certain accounting method, these methods should be applied for all other periods for accounting purposes. The accounting method is only to be changed if there is a valid reason for the change. For example, if a bookkeeper starts using a double-entry accounting method from January, the double entry method will continue to apply for the remainder of the accounting period. You should not start using the double-entry method and suddenly go through the medium-term accounting cycle of one-time accounting method for an unidentified, valid reason. This means that all accounting methods and procedures should be consistently applied to ensure that information is comparable between periods
. Going Concern Concept
When handling a business account, an auditor must assume that business is viable and will work in the foreseeable future. If the auditor has any reason to believe that the enterprise will not remain viable for the foreseeable future, the enterprise must disclose the reasons for the conclusion in its financial statements. If the accountant believes the company is not doing business and there is not enough evidence to prove the opposite, the accountant can simply include a statement in the financial statements that he believes but can not prove that the business is not will remain viable.
4. Prudential Concept
Obligations are included in the balance sheet, even if only such obligations exist, even though they are potentially potential. However, revenue is only recognized in the financial statements if the business has such revenue and has already collected or collecting cash or other assets in the future. If there is any doubt about this or there is no strong legal basis for revenue recognition, it is not included in the accounting books. This concept helps businesses make provision for potential losses, not only to make losses, and not to mislead the revenue they simply expected but not yet earned.
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