5/7/2019 Basic accounting concepts — AccountingTools

AccountingTools
ACCOUNTING CPE
COURSES & BOOKS

CPE Courses Books Articles Podcast Dictionary FAQs About

Home

Basic accounting concepts Search

March 20, 2019

Value Packs
Controller Library Value Pack
There are a number of conceptual issues that one must understand in
CFO Library Value Pack
order to develop a firm foundation of how accounting works. These basic Bookkeeper Library Value Pack
accounting concepts are as follows: Financial Analysis Value Pack

• Accruals concept. Revenue is recognized when earned, and Accounting Bestsellers

Accountants' Guidebook
expenses are recognized when assets are consumed. This concept
Accounting Controls Guidebook
means that a business may recognize revenue, profits and losses in
Accounting for Casinos & Gaming
amounts that vary from what would be recognized based on the Accounting for Inventory
cash received from customers or when cash is paid to suppliers and Accounting for Managers
employees. Auditors will only certify the financial statements of a Accounting Information Systems
Accounting Procedures Guidebook
business that have been prepared under the accruals concept.
Agricultural Accounting
• Conservatism concept. Revenue is only recognized when there is a Bookkeeping Guidebook
reasonable certainty that it will be realized, whereas expenses are Budgeting
CFO Guidebook
recognized sooner, when there is a reasonable possibility that they
Closing the Books
will be incurred. This concept tends to result in more conservative
Construction Accounting
financial statements. Cost Accounting Fundamentals
• Consistency concept. Once a business chooses to use a specific Cost Accounting Textbook
Credit & Collections
accounting method, it should continue using it on a go-forward
Fixed Asset Accounting
basis. By doing so, financial statements prepared in multiple periods Fraud Examination
can be reliably compared. GAAP Guidebook
Governmental Accounting
• Economic entity concept. The transactions of a business are to be
Health Care Accounting
kept separate from those of its owners. By doing so, there is no Hospitality Accounting
IFRS Guidebook
Lean Accounting Guidebook
https://www.accountingtools.com/articles/basic-accounting-concepts.html 1/2
5/7/2019 Basic accounting concepts — AccountingTools

intermingling of personal and business transactions in a company's New Controller Guidebook

Nonprofit Accounting
financial statements.
Oil & Gas Accounting
• Going concern concept. Financial statements are prepared on the Payables Management
assumption that the business will remain in operation in future Payroll Management
Public Company Accounting
periods. Under this assumption, revenue and expense recognition
Real Estate Accounting
may be deferred to a future period, when the company is still
Small Audit Practice Set
operating. Otherwise, all expense recognition in particular would be
accelerated into the current period. Finance Bestsellers

• Matching concept. The expenses related to revenue should be Business Ratios Guidebook
Corporate Cash Management
recognized in the same period in which the revenue was
Corporate Finance
recognized. By doing this, there is no deferral of expense Cost Management
recognition into later reporting periods, so that someone viewing a Enterprise Risk Management
company's financial statements can be assured that all aspects of a Financial Analysis
transaction have been recorded at the same time. Interpretation of Financials
Investor Relations Guidebook
• Materiality concept. Transactions should be recorded when not MBA Guidebook
doing so might alter the decisions made by a reader of a company's Mergers & Acquisitions
financial statements. This tends to result in relatively small-size Treasurer's Guidebook

transactions being recorded, so that the financial statements

Operations Bestsellers
comprehensively represent the financial results, financial position,
Constraint Management
and cash flows of a business. Human Resources Guidebook
Inventory Management
Related Courses New Manager Guidebook
Project Management
Purchasing Guidebook
Bookkeeper Education Bundle
Bookkeeping Guidebook
Send us your e-mail address
to receive monthly course
discounts *
 Steven Bragg 121 Likes Share

 Bookkeeping

SUBMIT

 FOB | Free on Board Cashier job description 

Copyright 2019

https://www.accountingtools.com/articles/basic-accounting-concepts.html 2/2