Accounting Concepts

Going concern concept gives the fundamental assumption that the business entity will continue fairly for a long time.

Accounting principles are accepted based on the past experiences.

Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend toward recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.

When an entity practice the substance over form, it means that the financial statements reflect the financial reality of the entity (Substance) rather than the legal form of the transactions and events (forms), which underlie them.

According to this concept, business and businessman are two separate entities. Hence, the capital as well as drawings by the businessman should be properly recorded in the books of accounts.
Matching concept states that the revenues of a particular period should be matched to the expenses incurred in that period in order to find out true profits. Accrual concept is concerned with recording cash as well as non-cash expenses and revenues in the books of accounting in order to find out true profits. Going concern concept states that business is assumed to exist for a long period of time.

According to conservatism, the business should not anticipate any profit but provide for all possible losses. Thus, stocks should be valued as stated above.
Consistency concept advocates for following the accounting policies consistently.
Realisation concept advocates for recording the change in value of asset only when it is realised.
Cost concept states that the asset should be recorded in the books at cost price minus depreciation if any.

Accounting is concerned with recording transactions of only the financial nature.
According to entity concept, business and businessman are two separate entities. Hence, the capital as well as drawings by the businessman should be properly recorded in the books of accounts.         
Matching concept states that the revenues of a particular period should be matched to the expenses incurred in that period in order to find out true profits. Accrual concept is concerned with recording cash as well as non- cash expenses and revenues in the books of accounting in order to find out true profits.

The accrual concept states that revenue should be recognized when it is earned, not when cash is received. An advance from customers represents cash received but service not yet rendered, so it cannot be recognized as sale/revenue. It is recorded as a liability (unearned revenue) until the goods are delivered or services are performed.

According to this concept, the business can ignore the disclosure of insignificant items to ease the work of accounting such as payment for postage stamps worth Rs. 20 may be considered as utilised and there is no need to record any stamps which are not utilised yet from this transaction.
Realisation concept advocates for recording the change in the value of an asset only when it is realised.
Cost concept states that the assets should be recorded in the books at cost price minus depreciation if any. According to conservatism, the business should not anticipate any profit but provide for all possible losses.

“Assets should be valued at the price paid to acquire them” is based on cost concept. Assets are entered in the books of account at the price paid to acquire them and this cost rather than market value is the basis for subsequent accounting for the asset. The real worth of an asset changes with the passage of time but the assets are shown in books of account at cost and not at what they are worth.

The materiality concept states that items with insignificant value can be treated as expenses rather than capitalized as assets, for practicality and cost-benefit reasons. A small calculator has immaterial value relative to the business's overall financials, so it's expensed instead of being depreciated as an asset over its useful life.

Bookkeeping is the foundational process of recording financial transactions, while management accounting, cost accounting, and financial accounting are specialized analytical branches that use bookkeeping data to generate insights, reports, and decisions. Bookkeeping is a technical skill, not a sub-field of accounting theory and practice.

The conservatism (or prudence) concept states that potential losses should be recognized immediately, but potential gains should not be anticipated. Valuing stock at the lower of cost or market value embodies this principle - if market value falls below cost, the loss is recognized immediately, but if market value rises above cost, the gain is not recognized until sold.

The business entity concept (or entity concept) states that a business is a separate and distinct economic unit from the person who owns or supplies capital to it. This means personal transactions of the owner must be kept separate from business transactions, and the business has its own identity for accounting purposes.