ACCOUNTING CONCEPTS

• Business Entity Concept = The business is identified as an independent unit from its owner
• Consistency Concept = Presentation and classification of financial statements should remain unchanged throughout the businesses financial life so they can be compared
• Historical cost concept = the assets owned by a business should be recorded at cost and liabilities at the price they arose
• Going concern concept = the assumption that a business will continue to operate in the foreseeable future
• Realization conmcept = Income (revenue) should only be recorded once earned
• Accrual Concept = Income and expenses should be recorded irrespective if they have been paid or received
• Prudence Concept = Assets and income shouldn't be overstated and expenses and liabilities shouldn't be understated
• Money measurement concept = transaction is only taken into account if it has a monetary value
• Periodic concept = The performance of the entity is measured in each time period which is why business life is divided into periods
• Materiality concept = Requires businesses to separately record a transaction only if the transaction affects the economic decision of the user
• Substance over-form concept = Priority should be given to economic substance over legal concept