ACCOUNTING PRINCIPLES

In dealing with the framework of accounting theory, we are confronted with a serious problem arising from differences in terminology. A number of words and terms have been used by different authors to express and explain the same idea or notion. The various terms used for describing the basic ideas are: concepts, postulates, propositions, assumptions, underlying principles, fundamentals, conventions, doctrines, rules, axioms, etc.

Each of these terms is capable of precise definition. But, the accounting profession has served to give them lose and overlapping meanings. One author may describe the same idea or notion as a concept and another as a convention and still another as postulate. For example, the separate business entity idea has been described by one author as a concept and by another as conventions. It is better for us not to waste our time to discuss the precise meaning of generic terms as the wide diversity in these terms can only serve to confuse the learner. We do feel, however, that some of these terms/ideas have a better claim to be called ‘concepts ‘ while the rest should be called ‘conventions’.

The term ‘Concept’ is used to connote the accounting postulates, i.e., necessary assumptions and ideas which are fundamental to accounting practice. In other words, fundamental accounting concepts are broad general assumptions which underline the periodic financial statements of business enterprises. The reason why some of the these terms should be called concepts is that they are basic assumptions and have a direct bearing on the quality of financial accounting information. The term ‘convention’ is used to signify customs or tradition as a guide to the preparation of accounting statements. The following are the important accounting concepts and conventions:

Accounting Concepts Accounting Conventions

♦ Separate Business Entity

♦ Convention of Materiality Concept

♦ Convention of Conservatism

♦ Money Measurement Concept

♦ Convention of consistency

♦ Dual Aspect Concept

♦ Going Concern Concept

♦ Accounting Period Concept

♦ Cost Concept

♦ The Matching Concept

♦ Accrual Concept

♦ Realisation Concept