ACCOUNTING CONCEPTS Meaning and
Definition
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Accounting concepts refer to a set of fundamental principles and guidelines that serve as the foundation for recording, reporting, and interpreting financial transactions of an organization. These concepts are universally followed by accountants and professionals in the financial field to ensure consistency, accuracy, and reliability in financial statements.
One of the accounting concepts is the entity concept. It presupposes that a business entity is separate from its owners or stakeholders. This means that the personal finances and transactions of the owners should be kept separate from the business finances. Another concept is the historical cost principle, which states that assets should be recorded at their original cost and not their current market value.
The going concern concept posits that a business is expected to operate indefinitely, unless there is evidence that suggests its liquidation. This concept allows assets to be recorded at their long-term rather than liquidation value. The concept of consistency asserts that once an accounting method or principle is chosen, it should be consistently applied over time to facilitate comparisons and analysis.
Other significant accounting concepts include the revenue recognition principle, which states that revenue should be recognized when it is earned and reasonably collectible, and the matching principle, which requires expenses to be recognized in the same period as the revenue they helped generate.
Overall, accounting concepts provide a standardized framework for accurately recording and reporting financial information, ensuring transparency, and aiding decision-making processes for individuals and organizations.
Etymology of ACCOUNTING CONCEPTS
The etymology of the term "accounting concepts" can be traced back to the origins of the individual words that make up the phrase.
1. Accounting: The word "accounting" derives from the Old French word "aconter", which means to reckon or count. It further evolved from the Latin word "computare", meaning to calculate or reckon.
2. Concepts: The word "concepts" comes from the Latin word "conceptus", which means a general idea or notion. It is derived from the verb "concipere", which means to conceive or comprehend.
When combined, the phrase "accounting concepts" refers to the general ideas, principles, or fundamental assumptions that form the basis of the accounting discipline. These concepts guide the measurement, valuation, recording, and reporting of financial transactions and activities.
