Accounting concepts

Name: L’Anna Hunter

Class: 9 Agri Tech
Teacher: Mrs. Hylton
Subject: Principles of Accounts
 Accounting concepts

 Prudence
The prudence concept is an accounting principle that requires recording expenses and liabilities
as soon as possible, but the revenues only when they are realized or assured.
Another way of looking at prudence is to only record revenues, or assets, when it is certain and
record expenses and liabilities when it is probable.
The prudence concept is also known as the ‘conservatism principle’.

 Consistency
The consistency principle is a principle that states that companies should use the same
accounting treatment for similar events and transactions over time. Meaning, once an accounting
method has been adopted, it must be applied consistently in the future.

 Accrual
An accrual is an accounting method that allows an entity to record expenses and revenues when
they are incurred, regardless of when cash is exchanged.
The term ‘accrual’ refers to any individual entry recording revenue or expense in the absence of
a cash transaction.

 Going Concern
The going concern concept is the assumption that an entity will remain in the business for the
foreseeable future, to carry out its commitments, obligations and objectives.
Conversely, this implies that the business entity will continue its operations in the future and will
not liquidate or be forced to discontinue operations due to any reason.

 Separate Entity
The separate entity concept states that we should always separately record the transactions of a
business and its owner/s. Otherwise, there is a considerable risk that the two may become
intermingled.
The personal finances and affairs of the owners of a business must be kept out of the financial
records. This allows people to ensure that the records of the business accurately reflect the
performance of the business.

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  Double Entry
Double entry accounting is a record keeping system, which every two transactions are listed
under at least two accounts, resulting in a debit to one or more accounts and a credit to one or
more accounts.
The amount of the transactions in each case must balance out, ensuring that all dollars are
accounted for. Debit entries are typically noted on the left, while credit entries are typically
noted on the right.
Double entry accounting serves as an efficient way for a company to monitor its financial growth,
especially as the scale of the business grows.
 Periodicity
The periodicity assumption, also known as the time period assumption, is an accounting
guideline that allows an organization to report its financial results within certain, designated
periods of time.
This means that an entity consistently reports its results and cash flows on a monthly, quarterly,
or annual basis. These time periods are kept the same over time, for the sake of comparability in
the future.