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Business Entity Concept

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16 views

Business Entity Concept

Uploaded by

visheshg2027i
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

Business entity concept

business is independent of its owner


not record its owner's personal expenses, income,
liabilities and assets

2. Going concern concept

assumption that a business may continue its


operations for the foreseeable future
If a business owner or the management is invested in
scaling down business operations to zero, they cannot
apply the going concern concept for accounting

3. Money measurement concept

companies record only those transactions that they


can quantify and measure in terms of money
If they cannot assign a monetary value to a
transaction, they do not record it in their annual
financial statement
examples of non-monetary value include employee
competence, product quality, employee efficiency,
market sentiment, business productivity and
stakeholder satisfaction

4. Accounting period concept

timeframe within which a business records and


reports its financial performance for the purview of
internal and external stakeholders

5. Accrual concept
Under this concept, a business records a financial
transaction in the period it occurs. It does not
consider whether the business pays or receives cash
at the time of the transaction, or if it pays cash after a
certain period
This helps record and report income, expenses,
liabilities and receivables accurately. All modern
accounting systems follow the accrual concept in
recording financial transactions.

6. Revenue realisation concept

seller records potential revenue from a transaction,


regardless of whether they have or have not received
proceeds
seller recognises the transaction by creating a
receivable against the buyer's name in their ledger. An
accountant creates another entry when they receive
the due amount in the future

7. Full disclosure concept

provide important financial information to investors,


creditors, shareholders, clients, and other
stakeholders. Disclosure policies cover revenue
recognition, depreciation, inventory, taxes, earnings,
stock value, leases and liabilities.

8. Dual aspect concept

every transaction affects two accounts of a business


Every financial transaction has a credit or debit or a
giver or receiver aspect. If an accounting process
does not represent both, it may lead to faults in the
final accounting record
bookkeeping, which is now a standard method for
auditing and taxation

9. Materiality concept

prescribes guidelines to identify if a piece of financial


information is material and whether it can influence
the person reading a company's financial statements.
Based on this concept, an accountant or a business
may remove negligible transactions that may not have
a bearing on final accounts
subjective interpretation
varies with the size of a company

10. Verifiable objective evidence concept

a business can record only those transactions that


they can furnish documentary proof for
a transaction can be biased or undependable without
proper documentation, and it can increase the scope
of financial irregularities

11. Historical cost concept

business may record assets and liabilities at their


historical cost rather than their current market or sale
value
helps to maintain consistent, reliable and verifiable
financial information. Including the current value of an
entity can result in financial irregularities

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