Accounting concepts

Accounting concepts are a set of general conventions that can be used as guidelines when dealing with accounting situations. These concepts have also been integrated into the various accounting standards, so that a user will not implement a standard and then find that it is in conflict with one of the accounting concepts. The key accounting concepts are as follows:

  • Accounting information should be complete in all respects.
  • Accounting information should be made available to users on a timely basis.
  • Accounting information should be presented in a manner that is easily understandable to the user.
  • Accounting information should be relevant to the needs of users.
  • Accounting information should be reliable.
  • Accounting information should contain no biases.
  • Accounting information should faithfully represent the related business transactions.
  • Accounting policies should be consistently applied over time, so that financial statements are consistent and comparable.
  • An accounting transaction should only be recorded when it can be measured in a currency.
  • Expenses should be recognized in the same period in which related revenues are recognized.
  • Financial statements are prepared under the assumption that a business will be a going concern.
  • Information should be reported if its absence would otherwise cause a user to make a different decision.
  • Revenue estimates should not be overstated, nor should expense estimates be understated.
  • Revenue should be recognized only when it has been earned.
  • The financial statements of a business are to be based solely on the entity’s own transactions, and will not be intermingled with those of its owners.
  • The underlying substance of a transaction is to be reported, rather than the legal form of the transaction.