What are Accounting Concepts?
Accounting concepts are the fundamental principles that underlie the practice of accounting. They provide a framework for the way financial transactions and events are recorded, classified, and reported. Some of the key accounting concepts include:
Business entity concept: This concept states that a business is separate and distinct from its owners and should be treated as such for accounting purposes.
Money measurement concept: This concept states that only transactions that can be expressed in monetary terms should be recorded in the financial statements.
Cost concept: This concept states that assets should be recorded at their cost, which is the amount paid to acquire them.
These concepts provide a foundation for the way financial information is recorded and reported, and they help ensure that financial statements are reliable and useful for decision-making purposes.
What are Accounting Principles?
The principles of accounting are kind of like the rules of the game when it comes to financial statements. They provide a framework for recording, classifying, and reporting financial information, and they help ensure that the financial statements we produce are reliable and useful for making decisions.
The historical cost principle says that we should record assets at their original cost, the amount paid to acquire them. The accrual principle states that we should recognize revenues when earned and expenses when they are incurred, regardless of when payment is received or made. The consistency principle says that a company should use the same accounting methods.
These principles provide a foundation for how we record and report financial information, and they help make sure the financial statements we produce are reliable and useful for decision-making purposes. They are established by professional accounting organizations or regulatory bodies and may be legally enforceable.
Difference Between Accounting Concepts and Accounting Principles
- Accounting concepts refer to the fundamental principles that underlie the practice of accounting, whereas accounting principles are the guidelines and rules that govern the preparation of financial statements.
- Accounting concepts provide a framework for the way financial transactions and events are recorded, classified, and reported, whereas accounting principles provide a set of rules for the preparation of financial statements.
- There are several key accounting concepts, including the business entity concept, the money measurement concept, the going concern concept, the cost concept, and the matching concept, whereas there are a smaller number of accounting principles.
- Accounting concepts apply to all businesses and are relevant to all financial transactions and events, whereas accounting principles may vary depending on the specific type of business or industry, as well as the jurisdiction in which the business operates.
- Both accounting concepts and accounting principles are important for ensuring the reliability and usefulness of financial statements, whereas accounting principles are more specific and focused on the preparation of financial statements.
Comparison Between Accounting Concepts and Accounting Principles
| Parameters of Comparison | Accounting Concepts | Accounting Principles |
| Definition | Fundamental Ideas | Guidelines & Rules |
| Function | Provision of Framework | Provision of Rules |
| Number | Many | A Few |
| Scope | All Businesses | Specific Businesses |
| Importance | General | Particular |