Accounting Concepts

The principle that a business is a separate entity from its owners, ensuring personal transactions do not mix with business accounts.

Only transactions measurable in monetary terms are recorded, excluding non-monetary factors like employee morale.

Assumes that a business will continue operating in the foreseeable future, justifying the use of historical cost for asset recording.

Assets are recorded at their original purchase price, ensuring objectivity in financial statements.

Every transaction affects at least two accounts, keeping the accounting equation balanced.

Expenses must be recognized in the same period as the related revenues, reflecting accurate profitability.

Transactions are recorded when they occur regardless of cash movement, providing a clearer financial performance picture.

Once an accounting method is chosen, it should be consistently applied across periods unless justified.

Potential losses should be anticipated, whereas gains are only recognized when realized, protecting against financial overstatements.

Revenue is recognized when earned, irrespective of payment timing, ensuring financial statements reflect actual transactions.