Accounting: Significance of Money Measurement Concept and Accounting Period Concept (For CBSE, ICSE, IAS, NET, NRA 2022)

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Concept assumes all business transactions must be in terms of money as in currency of country. In our country many transactions are done in terms of rupees. According to this concept, transactions which can be expressed in terms of money are recorded in the books of accounts. Sincerity, loyalty, honesty of employees is not recorded in books of accounts because these cannot be measured in terms of money.

Significance of Money Measurement Concept

  • Concept guides accountants what to record and what not to record.
  • It helps in recording business transactions uniformly.
  • It facilitates comparison of business performance of two different periods of same firm or of two different firms for same period.

Going Concern Concept

A business firm will continue to carry on its activities for an indefinite period of time, according to this concept. We can say that every business entity has continuity of life. It isimportant assumption of accounting. It provides a basis for showing value of assets in balance sheet. For example, a company Purchases a plant and machinery. Only a part of value is shown as expense in year of purchase and the remaining balance is shown as an asset.

Significance of Going Concern Concept

  • Concept facilitates preparation of financial statements.
  • Depreciation is charged on the fixed asset, on basis of this concept.
  • In absence of this concept, cost of a fixed asset will be treated as an expense in year of its purchase.
  • A business is judged for its capacity to earn profits in future.

Accounting Period Concept

The transactions are recorded in books of accounts on assumption that profits on these transactions are to be ascertained for a specified period. It is known as accounting period concept. This concept requires that a balance sheet and profit and loss account should be prepared at regular intervals. Necessity of this depends on different purposes like calculation of profit, ascertaining financial position, tax computation etc.

  • This concept assumes that, indefinite life of business is divided into parts.
  • Parts are known as Accounting Period.
  • It may be of one year, six months, three months etc.
  • Generally one year is taken as one accounting period which may be a calendar year or a financial year.
  • Transactions are recorded in books of accounts for a specified period of time, according to this concept.

Calendar year: Year begins from 1stof January and ends on 31stof December.

Financial year: year begins from 1stof April and ends on 31stof March.

Significance of Accounting Period Concept

  • It helps in predicting future prospects of the business.
  • Concept guides accountants to record or not to record.
  • It facilitates comparison of business performance of two different periods of the same firm.

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