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Accounting concepts
1. Cost concept: Assets are normally shown at cost price
2. Money measurement concept: The concept that accounting is concerned only with facts measurable
in money, and for which measurement can obtain general agreement.
3. The business entity concept: Assumption that only transactions that effect firm and not the owners
private transactions will be recorded.
4. The dual aspect concept: The concept that each transaction is recorded by taking both aspects, debit
and credit.
5. Accrual concept: The concept that profit is the difference between revenue and expenditure.
6. Going concern concept: The assumption that the business will continue to operate for the foreseeable
future or continue for a long time
7. Materiality concept: Recording something is a special way only if the amount is not a small one.
8. Subjectivity: Using a method that other people may not agree to derived from ones own personal
preferences.
9. Prudence: Ensuring that profit is not shown as being too high or that assets are shown at too high
value.
10. Consistency: Each firm should follow constant method of treatment for each item. If the method is
changing every year, then the profit calculated will be misleading one.
11. Time interval concept: Final accounts are prepared at regular intervals.
MCQ
1. Fixed assets are generally shown at cost price. Which of the accounting concept is followed?
A. Money measurement concept
B. Historical cost concept
Going concern concept
D. The business entity concept
2. The motor car purchased by the owner of a business for his private use, did not record in the books
of the business?
A. Business entity concept
B. Money measurement concept
C. Historical cost concept
D. Going concern concept
3. A firm bought goods $ 300 by cash. The accountant recorded the entry in the purchase account, but
did not record in the cash book. Which accounting concept is violated?
A. Dual aspect concept
B. Money measurement concept
C. Going concern concept
D. Consistency
4. According to which concept is the profit or loss calculated, by taking the income and expenditure?
A. Dual aspect concept
B. Money measurement concept
C. Matching concept
D. Cost
5. Under which principle is the provision for bad debts created?
A. Dual aspect concept
B. Consistency
C. Going concern
D. Conservatism
6. According to which concept, monetary transactions only are recorded in the books?
A. Money measurement concept
B. Dual aspect concept
C. Accrual concept
D. Prudence concept
7. When does the concept of realization imply?
A. When cash is received from debtors
B. When goods are delivered to customer
C. When order is received
D. When cash is paid to creditors
8. What is the life of a business according to going concern concept?
A. Limited life
B. Indefinite life
C. Very long life
D. Very short life