Key accounting concepts

Accounting is a vibrant profession with many concepts, principles, and terms to understand. 

Many countries have different accounting concepts, but some are universal. Here are the top ten key accounting concepts :

• Entity Concept –  A useful concept used to avoid confusion between a business owner’s personal accounts and their business. An individual’s private financial transactions should be kept separate from business expenses. If this accounting concept were not put in place, there would be a mix of records from various entities and it would be difficult to determine the correct taxable amount.
• Accrual Concept  : An accrual is a journal entry that can be used to recognize income and expenses that have been earned and spent. Without this concept, the amount of income, expenses, gains or losses would not correctly reflect the economic activity of a company. 
• Going Business Concept  : Accountants use this concept to assume that the business will stay in business indefinitely and stick to its current financial plans. An advantage of this concept is that the cost of assets can be spread over the useful life rather than covering the cost all at once. 
• Conservatism Concept –  The most conservative of all accounting concepts, as earnings are not taken into consideration until they are realized and the money is in the bank.
• Completion concept :  this concept indicates the amount of income that must be recorded from a specific sale. It is very similar to the concept of conservatism in that income is only recorded when it is received.
• Matching concept:  to avoid overvaluation of income in a period. Costs should be matched with income to avoid any confusion in financial documents.
• Materiality concept: Negligible costs are ignored in business documents, and accountants must be careful in deciding whether an expense or item is relevant or irrelevant.
• Consistency Concept – Accountants encourage clients to be consistent in using a specific accounting concept to effectively compare financial documents.
• Double entry concept : According to this concept, all business transactions must be recorded in at least two different accounts.
• Cost concept: Accountants must record an asset, liability or equity at the original acquisition cost. Key accounting concepts