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Home » Introduction to Accounting » Accounting Concepts
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Accounting Concepts:
The term 'concepts' includes those basic assumptions or conditions on which the science of accounting is based.
1. Separate Entity Concept:
Accounts are kept for entities, as distinguished from the persons who are associated with these entities. In recording events in accounting, the important question is: "How do these events affect the entity?" How they affect the persons who own, operate, or otherwise are associated with the entity is irrelevant. For example, when a person invests $200,000 into business it will be deemed that the owner has given that money to the business which will be shown as a 'liability' in the books of the business. In case the owner withdraws $30,000 from the business, it will change the position and the net amount payable by the business to the owner will be shown only as $170,000.
The concept of separate entity is applicable to all forms of business organizations. For example, in case of a sole proprietorship or partnership business, though the sole proprietor or partners are not considered as separate entities in the eyes of law, but for accounting purposes they will be considered as separate entities.
2. Going Concern Concept:
According to this concept it is assumed that an entity is a going concern--that it will continue to operate for an indefinite time period there is no intention to liquidate the particular business venture in the foreseeable future. On account of this concept, the accountant while valuing the asset does not take into account
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Home » Introduction to Accounting » Accounting Concepts
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Accounting Concepts:
The term 'concepts' includes those basic assumptions or conditions on which the science of accounting is based.
1. Separate Entity Concept:
Accounts are kept for entities, as distinguished from the persons who are associated with these entities. In recording events in accounting, the important question is: "How do these events affect the entity?" How they affect the persons who own, operate, or otherwise are associated with the entity is irrelevant. For example, when a person invests $200,000 into business it will be deemed that the owner has given that money to the business which will be shown as a 'liability' in the books of the business. In case the owner withdraws $30,000 from the business, it will change the position and the net amount payable by the business to the owner will be shown only as $170,000.
The concept of separate entity is applicable to all forms of business organizations. For example, in case of a sole proprietorship or partnership business, though the sole proprietor or partners are not considered as separate entities in the eyes of law, but for accounting purposes they will be considered as separate entities.
2. Going Concern Concept:
According to this concept it is assumed that an entity is a going concern--that it will continue to operate for an indefinite time period there is no intention to liquidate the particular business venture in the foreseeable future. On account of this concept, the accountant while valuing the asset does not take into account