Meaning and Business Entity Concept

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Accounting Concepts

In order to maintain uniformity and consistency in preparing and maintaining books of accounts, certain rules/principles have been evolved. These rules/principles are classified as concepts and conventions. These are foundations of preparing and maintaining accounting records. In this lesson we learn about various accounting concepts, their meaning and significance.

In India there is basic rule for driving, according to rule everyone should walk or drive on left hand side of the road. It helps in smooth flow of traffic. Similarly there are certain rules that an accountant should follow while recording business transactions and preparing accounts. These can be termed as accounting concept. It can be said that

Accounting concept refers to the basic assumptions and rules and

Principles which work as the basis of recording of business transactions and preparing accounts

Main objective is to maintain uniformity and consistency in accounting records. These concepts constitute very basis of accounting. All the concepts have been developed over years from experience and thus they are universally accepted rules. Following are various accounting concepts that have been discussed in detail.

  • Business entity concept

  • Money measurement concept

  • Going concern concept

  • Accounting period concept

  • Accounting cost concept

  • Duality aspect concept

  • Realization concept

  • Accrual concept

  • Matching concept

Fig.2.1 Accounting Concepts

Business entity concept

Business enterprise and owners are two separate independent entities, assume by this concept for accounting. So transactions for both are assumes separate. Any expenses incurred by owner for him or his family from business will be considered as expenses and it will be shown as drawings.

Significance of Business entity concept

  • Concept helps to find out profit of business as only business expenses.

  • Revenues are recorded separately.

  • Private and personal expenses are ignored.

  • Concept restraint accountant from recording of owner’s private/personal transactions.

  • It facilitates recording of business transactions from business point of view.

  • It is very basis of accounting concepts, conventions and principles.