ACCOUNTING CONCEPTS AND

CONVENTIONS.

BY –
ANIL KUMAR ARORA
AKSHAY DHINGRA
CHANDIGARH BUSINESS
SCHOOL
 ACCOUNTING CONCEPTS

Accounting Concepts are the basic

assumptions on which the accounting is
based. There are 9 major Concepts :

1.BUSINESS ENTITY CONCEPT :

Business entity means
a unit of organized business entity. A
business entity is said to be separate and
different from its owners.
2. GOING CONCERN CONCEPT :
According to this
concept it is assumed that the business will
continue for a fairly long time to come.
There is neither the intention nor the
necessity to liquidate the particular business
venture in the foreseeable future.

3. MONEY MEASUREMENT CONCEPT :

The basic unit of
measurement in accounting is Money. This
concept has two major implications :
 Money is the only factor common to all
business transactions.
 Only those transactions and events are to be
recorded in the books of accounts which can
be expressed in terms of money.

4. COST CONCEPT :
Cost is defined as the
expenditure incurred for acquiring an asset
or service. The principle states that the asset
and services are recorded at their purchase
cost and the accounting record should be
based on cost rather than on current market
value.
5. REALISATION CONCEPT :
The concept is very
closely related to the cost concept.
According to the concept, any change in
the value of an asset should be recognized
at the time the firm realised or disposes of
the asset. This concept is strongly
criticised as the value of an asset has been
changing with the passage of time and the
profit or loss arising out of the such asset
couldnot be ascertained fairly.
6. MATCHING CONCEPT :
In order to determine the
results of the business operations during the
particular period the expenses of that period
should be matched with the revenue earned
during that period through the sale of goods
or services. Sale of good has two aspects :
 A revenue aspect (revenue realised)
 An expense aspect (good have gone out
of the business)
7. DUAL ASPECT CONCEPT :
According to this concept of
accounting, every transaction has two aspects:
I. Receiving Aspect
II. Giving Aspect
It means that every business
transaction affects at least two accounts
simultaneously.

8. ACCOUNTING PERIOD CONCEPT :

As per this principle, to ascertain
the performance and the financial standing of the
Business, the accounts are prepared on the annual
basis so that the position of the business could be
known and new policies could be made
accordingly. Generally, the financial year is taken
for preparing accounts which is from 1st April to
31st March.

9. ACCRUAL CONCEPT :
Accrual implies earning an
income(whether received or not) and incurring an
expenditure(whether paid for or not) in
accounting period. Accrual concept recognises
income when it is earned rather then when it is
collected. Similarly, recognises expenses when it
is incurred rather then when they are paid.
 ACCOUNTING CONVENTIONS

Accounting Conventions consists of those

customs or traditions which act as a guide to
the accountant for the preparation of final
statements.
1. CONSISTENCY :
This convention states that
once the company or any organisation has
decided any method then it will continue using
the same method unless it has a sound reason
to change the method.
2. CONSERVATION :
This principle states that the
accountant should not recognise any profit or
gains till realised but should provide for all
possible losses. It takes into consideration all
probable losses but ignore all expected losses.

3. MATERIALITY :
Materiality implies that events
of relatively small importance need not be given
much importance. Thus, any transaction having
significant effect on the business is material.
4. FULL DISCLOSURE PRINCIPLE :
All significant information
relating to the economic affairs of the
business organisation should be reported
fully on the financial statements. All
information should be honest as it helps the
interested parties like creditors, investors
and proprietors to take their decision.
THANK YOU