Accounting is one of the vital tools to collect financial information pertaining to business activities. The same information is used in economic decisions users make. The apex of accounting or specifically financial accounting is financial statements that puts the gives the accounting records meaningful shape so that it can be used. However, preparing financial statements involve identification, classification, measurement and reporting or disclosure of business activities.
Accounting concepts and principles are such sets of principles and concepts that helps management or people responsible to prepare financial statements in preparing relevant and reliable financial statements as these concepts help in identifying, classifying, measuring and reporting business transactions and events in appropriate manner. These are sometimes referred as fundamental principles of accounting
In the world different accounting bodies have different sets of concepts and policies but the objective for all of such accounting framework is almost the same with a hairline difference. All of them struggles to ensure that users of financial statement get relevant and reliable financial information i.e. financial statements provide true and fair view of the business. For example USA has its own set of Generally Accepted Accounting Principles (GAAPs), UK has its own etc. And due to these differences financial statements prepared under one framework may be different from the financial statements prepared on another basis.
However, as a result of joint efforts of known accounting bodies we are close to having unified GAAPs and accountants are hopeful that differences will be eliminated on having unified accounting framework. But this is still a dream to be realised though it seems not very distant now.
Following is a list of accounting concepts and principles under different accounting frameworks. Click the relevant concept or principle to learn more about them. The following list of concepts is a mix of GAAPs and IFRSs as these are the two most followed frameworks but they do have different approach towards accounting. But some similarities are definitely there and therefore share the same meaning. As said earlier, on the outlook both frameworks may have different concepts and principles but ultimate goal is same therefore you can also observe that a concept or collection of concepts in one framework appear to have same meaning as a a concept or a collection of concepts in another framework states. For example prudence or conservatism share the same purpose as neutrality but approach is somewhat different.
- Separate entity concept / Business entity concept / Economic entity concept
- Accruals concept
- Going concern concept
- Conservatism / prudence
- Materiality
- Monetary value / stable measuring unit assumption
- Matching principle
- Substance over form
- Consistency
- Revenue recognition principle / realisation concept
- Full disclosure principle
- Time interval principle
- Historical cost concept
- Understandability
- True and Fair override
- Relevance
- Completeness
- Neutrality / objectivity
- Duality concept
- Verifiability
- Constant purchasing power concept
- Faithful representation
Other notable points
- Balance sheet approach
- Equity concept