Competitive Exams Accountancy Types

Types of Accounting Concepts

To know more about Accounting Concepts are very necessary to learn because without this you can not understand the fundamentals of accounting. There are many concepts which an accountant uses in their accounting working.

1st concept Separate entity concept

Under this concept the entity of business man is separate from its business. The main reason is that owner is just giver of capital but if he withdraws without any restriction or any control. Business can dissolve within two days. So every transaction related to withdrawing money from business must be recorded by accountant. So this concept gives us basic knowledge while we are recording transactions in our books that we must know that concern has its own entity and our duty is to record every transaction even it is related to owner or not. Businessman's capital is also the liability of business and if he withdraw for personal use, it is known as drawing and it is deducted from his capital. So under this concept, accountant records every cash, goods and usage of fixed assets for personal use of businessman and while he makes balance sheet all these expenses are deducted from businessman's capital.

2nd Concept Cost Concept

Under this concept we record all assets on their cost not in market value. This concept is very useful for stable recording of accounting. Because if all transaction recording will start on their market value then it create tension to accountant. Because nobody can say what will the price of your fixed asset in next day. So record all assets on their original cost. But time to time depreciation is deducted from this. But we never record all assets on their market price.

3rd Concept Matching Concept

When I was doing graduate from my college, my respected teacher taught me that matching concept is very important for an accountant. It means we will compare all expenses with the incomes of business. After matching or compare, it will provide you the real result of performance of business. We can say it profit or loss. So If today you want to know profit or loss of your business, let us start match of your business incomes with your business expenses.

4th Concept Conservatism Concept

This concept is made when accountant thought that it is very important to secure our business. The risk of business is called losses. So it is the basic duty of accountant to secure his business from different losses. For securing Loss he can make different provisions like provision for doubtful debts, provision for depreciation reserve for contingent liabilities.