Business Entity Concept 2
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Business Entity Concept- The business and the businessman are two different and distinct entities. I.e. that the firm and the partners, the company and the shareholders, the owners and the organization have their own distinct identities. All accounting is done from the perspective of the business. The accountant regards owners, creditors, suppliers, customers as parties transacting with the business. All transactions are viewed from the point of view of the business.
Money Measurement Concept- Only those facts that can be expressed in monetary terms are to be recorded. Thus important elements of a business enterprise like morale of workers, honesty of management etc. though important, can’t be recorded. The use of a monetary yardstick serves as a common denominator to express other elements of business such as land, equipment, goodwill etc.
Going Concern Concept- This assumes that the business entity will remain in existence in perpetuity.
Cost Concept- Assets acquired by a business are recorded at their actual cost. This concept in tandem with the going concern concept does not consider the existing market price of the assets because such assets would never be sold and hence should be valued at cost. The depreciation is also therefore charged on the original cost.
The principle of Conservatism- This principle modifies the cost concept to the extent that it asks accountants to “anticipate no profit but expect all kinds of losses”. Thus inventory and stocks are valued at cost price or market price, whichever is less.
Accrual Concept- Incomes are what the business earns and expenses are what the business incurs. As a rule any transaction which leads to the increase in the owner’s equity is an income and anything that reduces the owner’s equity is an expense.
The Dual Entity Concept- It is the fundamental concept in accounting. The whole accounting mechanism depends on the function of this concept. According to this
Business Entity Concept- The business and the businessman are two different and distinct entities. I.e. that the firm and the partners, the company and the shareholders, the owners and the organization have their own distinct identities. All accounting is done from the perspective of the business. The accountant regards owners, creditors, suppliers, customers as parties transacting with the business. All transactions are viewed from the point of view of the business.
Money Measurement Concept- Only those facts that can be expressed in monetary terms are to be recorded. Thus important elements of a business enterprise like morale of workers, honesty of management etc. though important, can’t be recorded. The use of a monetary yardstick serves as a common denominator to express other elements of business such as land, equipment, goodwill etc.
Going Concern Concept- This assumes that the business entity will remain in existence in perpetuity.
Cost Concept- Assets acquired by a business are recorded at their actual cost. This concept in tandem with the going concern concept does not consider the existing market price of the assets because such assets would never be sold and hence should be valued at cost. The depreciation is also therefore charged on the original cost.
The principle of Conservatism- This principle modifies the cost concept to the extent that it asks accountants to “anticipate no profit but expect all kinds of losses”. Thus inventory and stocks are valued at cost price or market price, whichever is less.
Accrual Concept- Incomes are what the business earns and expenses are what the business incurs. As a rule any transaction which leads to the increase in the owner’s equity is an income and anything that reduces the owner’s equity is an expense.
The Dual Entity Concept- It is the fundamental concept in accounting. The whole accounting mechanism depends on the function of this concept. According to this