ACCOUNTING CONCEPT

Concept Definition Example

Revenues are recognized
Accruals when earned, and expenses
are recognized when assets
are consumed.
The asset and income
Prudence cannot be overstated and
expenses and liabilities
cannot be understated.
Business should use only
Consistency one policy in preparing and
reporting financial
statements.
The transactions of a
Business entity business are to be kept
separate from those of its
owners.
Financial statements are
Going concern prepared on the assumption
that the business will remain
in operation in future
periods.
The expenses related to
Matching revenue should be
recognized in the same
period in which the revenue
was recognized.
Principle in accounting that
Materiality trivial matters are to be
disregarded and all
important matters are to be
disclosed. Items that are
large enough to matter
are material items.
All the asset, liability,
Historical cost income and expenses
should be recorded at cost
price.
Time Period Every financial statement
must have time period.
 ACCOUNTING EQUATION

ASSET = LIABILITIES + OWNER EQUITY

OWNER EQUITY = CAPITAL + NET PROFIT DRAWING
NET PROFIT / LOSS = REVENUE - EXPENSES