Q. What is the need of accounting concepts? Discuss various Accounting concepts along with their implications?

Ans. ACCOUNTING CONCEPTS

It denotes logical consideration and a notion which is generally and widely accepted. The term is not used in the sense of a set of hard and fast rules but rather of rules of general application which helps in the selection of accounting methods appropriate in particular circumstances.

Types of Accounting Concepts 1) Business Entity Concept

In accounting we treat a business or an organization and its owners as two separately identifiable parties. This concept is called business entity concept. Businesses are organized either as a proprietorship, a partnership or a company. They differ on the level of control the ultimate owners exercise on the business, but in all forms the personal transactions of the owners are not mixed up with the businesses'.

Implication of the above concept is that the owner and business are treated as two different and distinct entitles and we record the transaction from the view point of business. This explains why capital contributed by the owner is shown as a liability in the balance sheet of the business.

2) Money Measurement Concept.

The money measurement concept holds that the transactions and events , how ever important they may be , which cannot be measured in monetary terms are not record in accounting. Implication of above concept is that money does not provide a stable measurement basis because it is influenced by inflation on deflation in the economy which render the accounting data less useful.

3) Going Concern Concept.

This concept assumes that the business will continue to exist and carry on its operation for an indefinite period in the future. The entity is assumed to remain in operation sufficiently long to carry out its objects and plans. Implication of this concept is that the earning proof and not the cost is the basis for value is a continuing business.

4) Accounting Period Concept.

According to this concept it is necessary to take into account all items of revenue and expenses accruing during the accounting period.For e.g.(1April to 31March) financial year. Implication of accounting period concept is that final accounts are prepared for the accounting period and financial position of the business is shown at the end of accounting period.

5) Cost Concept.
This concept is closely related to going concern concept. According to this , an asset is ordinarily recorded in the books at the price at which it was acquired at the cost price. This cost serves the basis for the accounting of this asset during the subsequent period. Implication of this concept is to record the assets in the books of accounts only at the actual cost of acquisition.

6) Dual-Aspect Concept.
Dual concept may be stated as for every debit there ie a credit.Every transaction should have two sided effect to the extent of same amount.

7) Revenue Recognition (Realisation) Concept.

This concept emphasizes that profie should be considered only when realised. The question is at what stage profit should be deemed to have accrued whether at the time of receiving the order. It means that profit is deemed to have accrued when property in goods passes to the buyer i.e. sales are effected. Implication of the concept of realisation flows from the convention of conservation.It implies that accounting should take into consideration profits only when the same have been realised.

8) Matching Concept.
Though the business is a continuous affair yet its continuity is artificially split into several accounting years for determinig its periodic results .The profit is the measure of the economic performance of a concern and as such it increase proprietors equity. Implication of this concept is that meaningful information can be ascertain relating to the same accounting period are matched against the expenses of the same period.

9) Accrual Concept.
Accounting attempts to recognise non-cash events and circumstances as they occur accrual is concerned with expected future cash receipts and payments. It is accounting process of recognising assets, liabilities or income from amounts expected to be received or paid in future.

10) Stable monetary Unit Concept.

Accounting presumes that the purchasing power of monetary unit, say Rupee, remain the same throughout, thus ignoring the effect of rising and falling purchasing power of monetary unit due to deflation or inflation. Inspite of the fact that the assumption is unreal and the practises of ignoring changes in the value of money is now being extensively questioned. Implication of above concept is that variations in the intrinsic value of monetary unit say Rupee is ignored by traditional financial accounting,