Concept means the fundamental principle to be followed by an accountant at the time of maintaining books of account.There are some important concepts of accounting that are discussed below.
i.Business entity concept:
According to this concept business and its owner are two different person.The transaction should be recorded separately. Accounting equation that is asset equal to liability+capital is an expression of this entity concept.
ii.Going Concern Concept:
According to this concept an organisation should continue for a long period that means it should not be shut down in near future.So it enables the organisation to carry on credit transactions and also helps to arrange loans and material from suppliers etc.
iii.Accounting period Concept:
According to this concept this performance of business should be measured periodically.The accounting period consists of 12 month which starts from first April to 31st March.At the end of each accounting period the financial statement and account are prepared to know the financial position and performance.
iv.Objective evidence Concept:
According to this concept all the transactions recorded and reported in a financial statement must be based on objective organisation.This concept is clear that all the principle and financial statement must be directed towards the objective of organisation.
v.Dual aspect concept:
According to his concept each and every transaction has two aspects.First is the receiving or debit aspect and another is the giving or credit aspect that means every debit must have its credit and vice versa.The accounting equation based on his concept for which both sides of the balance sheet are always tally.
vi.Money measurement concept:
According to this concept accounting only records those transactions which can be expressed in terms of money at the same time it ignores the qualitative transaction. The advantages of this concept is that money is used as a common medium of exchange through which we can make our claims.
According to this concept the asset should be recorded at the price which is paid to acquire.It helps to remove the fixed assets by writing of depreciation every year against the income.The market value of an asset may change with the passage of time but for accounting purpose it should be shown at its book value by charging depreciation.
According to this concept expenditure of a period should be match with the revenue in order to know the profit or loss of the period.This concept is very much helpful for the ascertainment of income tax.Therefore application of matching concept is very much essential at the time of preparing financial statement to know the true and fair profitability and financial position.
According to this concept the income is recorded when it is earned but it’s immaterial whether receive or not similarly expenses are recorded when it is incurred but it is immaterial whether it is paid or not.
Convention refers to the rules and regulations which guide the accountant at the time of preparing an accounting statement.
I.Convention of consistency:
According to this convention accounting rules and regulations should not change from year to year. This convention helps to compare the performance and position of an organization between different year.This convention believes that the frequent change in accounting treatment should make financial statements unreliable.
ii.Convention of conservative:
According to this convention a business man should participate for no profit but provide for all possible losses.These convention stated that closing stock should be valued at cost price or market price whichever is lower.
iii.Convention of full disclosure:
According to this convention all accounting statements should be prepared honestly and should disclose all significant information. This convention helps owners,creditors and investors to understand accounting statements very well and make suitable decisions.
iv.Convention of materiality:
According to this convention an accountant should put emphasis on the transaction involving less amount.This convention also said that the figure should be rounded to nearest rupees in order to make financial statements manageable.