HISTORICAL COST CONCEPT Assets, services recorded at price or sacrifice incurred to acquire them. This is called COST.

Changes in value of non-monetary assets ignored. Exchange values are ignored. NOTES: This concept basically does not encourage the use of current cost or replacement cost. Hence, it does not look into what the assets might have cost when we need to replace it. Only, the price paid is recorded. PRUDENCE OR CONSERVATISM CONCEPT: Recognize revenue only when they are reasonably certain Recognize expenses as soon as they are reasonably possible NOTES: This concept basically does not encourage the anticipation of recognizing income when it is not certain. It prefers that any expenses that can be reasonably ascertain should be taken up. Substance Over Form: The Financial Statement reflects the financial reality rather than legal form of the underlying transaction . Accountant needs to see the real nature of transaction rather than legal form. Example : Finance Lease in this type of lease asset is not legally transfer to the lessee but still record in its book as Asset because of Substance Over Form concept. ACCRUALS CONCEPT The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.