What are the Accounting Concepts?

Accounting is the most important function of every size business as it is based on certain accounting concepts and values and is different from book keeping. In fact, accounting is the process of dealing out with the bookkeeping statistics and obtaining some significant information from it.

What are Accounting concepts?

Accounting concepts are a set of wide principles which have been formulated to provide a fundamental outline or agenda for financial reporting. Basically, financial reporting involves certain specialized judgments’ by skilled accountants and these principles and concepts make sure that the users are not deluded by the acceptance of accounting policies and performance which go against the will of the accountancy profession. Therefore, the accountants must consider whether the accounting treatments are reliable with the accounting concepts and principles or not.

Following are the concepts and principles of Accounting

• Reliability

The information is reliable when the accountant or the user depends upon it to be perfect only if it loyally represents information that it claims to present. Well, certain omissions reduce the dependability of information in the financial statements.

• Relevance

Information need to be appropriate to the decision making needs of the accountant as it helps the users in forecasting the future trends of the business or to confirm or correct any of the past predictions. 

• Neutrality

Information contained in the financial reports need to be free from partiality and should reflect a balanced view of the affairs of the organization without challenging to present them in a preferential or special way. It must be neutral without any partiality. 
 

• Faithful Representation

There needs to be trustworthy in presenting the financial statements with honest transactions which occur all during the period. This accounting concept is known as Farm or Substance over.

• Prudence

Here there is need of financial statement preparation with the use of professional help in the adoption of accountancy estimates and policies. It requires that the financial accountants must work out a degree of caution in the acceptance of policies and certain approximation of income and assets.

• Completeness

Depending on the information present in the financial report is achieved only when complete financial information is presented to the concerned business and other financial decisions making needs of the accountant. 

Consequently, information needs to be complete in all respects without any partial view.

See also:

Accounting Basics

About Accounting

Accounting assumptions and characteristics