Accounting Concepts and Principles with Examples

Hi, today we talk about the Accounting Concepts are important in maintaining reliability, uniformity, consistency in preparing books of accounts. In this lesson, we discuss the basic accounting concepts and principles in preparing the book of accounts.

Accounting Concepts and Principles with Examples

Accounting Concepts and Principles with Examples

The best basic Accounting Concepts and principles are given below

Economic entity assumption

  • An economic entity which is separate and distinct from other entities and owner
  • Example:- mineral water activities different from the parent company coca cola

Monetary unit assumption

  • Accounting records only transaction which can be expressed in term of money
  • Example: - employee satisfaction are not included in financial records

Time period assumption

  • The life of the business is divided into appropriate segments for studying the result shown by the business after each segment
  • Example: - months, quarters and years

Accounting Concepts with Examples

Cost principles

  • An asset ordinarily recorded in the books at which it was acquired (i-e at its cost price)
  • Example: - purchase of machinery of 10000 and enter into the book

Full disclosure principle

  • The users of the financial statement are informed of any facts necessary for the proper interpretation of the statement. Full disclosure may be either in the body of a financial statement or in notes accompanying the statement, all information should be shared with owners as well the customers
  • Example: - loan agreement

Going concern concept

  • It is assumed that business will exact for a long time to come
  • Example: - computation of depreciation on the basis of the expected economic life of fixed assets rather than their current market value

Accounting Concepts and Principles

Matching Principle

  • The concept of offsetting expense against revenue on the basis of cause and effect is matching concept
  • Example: - a hospital pay 20000 per month to 5 of its doctors, monthly sales are 500000, 100000 worth of monthly salaries should be matched with 500000 of revenue generated.

Revenue recognition principles

  • This concept emphasizes that profit should be considered only when realized
  • Example: - a telecommunication company sells talk time through scratch cards, no revenue is recognized when the scratch card is sold, but it is recognized when the subscriber makes a call and consumes the talk time


  • According to this Accounting Concept, only those events or items should be recorded which have a significant bearing and make change the decision of the management
  • Example: - the remuneration paid to the company’s executive and directors is material due to qualitative reasons


  • The accountant follows the policy of paying safe. It takes into consideration all prospective losses but leaves all prospective profit
  • Example: - assets and revenue would be recorded unless there is clear that entity could measure those transactions reliably.

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