Accounting Concepts1. Introduction to Accounting Principles The concept of accounting refers to the basic assumptions, rules and principles that function as the basis for recording business transactions and preparing accounts. The main objective is to maintain uniformity and consistency of accounting records. These concepts form the very basis of accounting. All concepts have been developed over the years by experience and therefore are universally accepted rules.2. Underlying accounting conceptsHistorical cost conceptAccounting deals with past events and requires consistency and comparability, which is why it requires accounting transactions to be recorded at their historical costs. This is called the historical cost concept. Historical cost is the value of a resource sold or a liability incurred to acquire a good/service at the time the resource was sold or the liability was incurred. In subsequent periods, when there is appreciation, the value is not recognized as an increase in the value of the asset except when permitted or required by accounting standards.Examples1. A month ago, 100 units of an item were purchased for $10 each. The price today is $11 per unit. The inventory will appear on the balance sheet at $1,000 and not at $1,100.2. The company built its ERP in 2008 at a cost of $40 million. In 2010, the present value of future benefits attributable to ERP is estimated to be $1 billion. The ERP must be budgeted at its historical costs less accumulated depreciation.Time Lag ConceptThe time lag concept, in accounting, requires that financial statements be prepared at regular intervals, e.g. monthly, quarterly, annually. Money measurement conceptThe mo..... .middle of paper... differs from its real substance, accounting must show the transaction in accordance with its real substance, that is, how the transaction affects the economic situation of the enterprise.4. The Difference Between Underlying Accounting Concepts and Fundamental Accounting Concepts Fundamental accounting concepts and underlying concepts are different in that the primary concepts are based on the fundamental ones. They are the basis from which the fundamental ones derive. However, they are different because the underlying concepts are simply assumptions understood by accountants, while the fundamental concepts are specific rules followed by accountants. ConclusionIn conclusion accounting concepts are essential for every organization that adheres to the strict guidelines of the concepts in order to provide better transparency to the general public.

Topic > Accounting Concepts1. Introduction to Accounting Principles The concept of accounting refers to the basic assumptions, rules and principles that function as the basis for recording business transactions and preparing accounts. The main objective is to maintain uniformity and consistency of accounting records. These concepts form the very basis of accounting. All concepts have been developed over the years by experience and therefore are universally accepted rules.2. Underlying accounting conceptsHistorical cost conceptAccounting deals with past events and requires consistency and comparability, which is why it requires accounting transactions to be recorded at their historical costs. This is called the historical cost concept. Historical cost is the value of a resource sold or a liability incurred to acquire a good/service at the time the resource was sold or the liability was incurred. In subsequent periods, when there is appreciation, the value is not recognized as an increase in the value of the asset except when permitted or required by accounting standards.Examples1. A month ago, 100 units of an item were purchased for $10 each. The price today is $11 per unit. The inventory will appear on the balance sheet at $1,000 and not at $1,100.2. The company built its ERP in 2008 at a cost of $40 million. In 2010, the present value of future benefits attributable to ERP is estimated to be $1 billion. The ERP must be budgeted at its historical costs less accumulated depreciation.Time Lag ConceptThe time lag concept, in accounting, requires that financial statements be prepared at regular intervals, e.g. monthly, quarterly, annually. Money measurement conceptThe mo..... .middle of paper... differs from its real substance, accounting must show the transaction in accordance with its real substance, that is, how the transaction affects the economic situation of the enterprise.4. The Difference Between Underlying Accounting Concepts and Fundamental Accounting Concepts Fundamental accounting concepts and underlying concepts are different in that the primary concepts are based on the fundamental ones. They are the basis from which the fundamental ones derive. However, they are different because the underlying concepts are simply assumptions understood by accountants, while the fundamental concepts are specific rules followed by accountants. ConclusionIn conclusion accounting concepts are essential for every organization that adheres to the strict guidelines of the concepts in order to provide better transparency to the general public.