Accounting concepts definition

The accounting concepts are usually applied by accountants and bookkeepers in the course of maintaining the books of accounts as well as in the preparations of financial statements. These concepts are understood and applied by all accountants and finance professionals all over the world.

1. Accounting concepts defined

They are a set of principles, assumptions, basis, and rules that are applied by accountants in the preparation of financial statements. It is referred to as the generally accepted principles used in the record keeping of financial transactions as well as in the preparations of the statements.

These broad concepts are applied by all accountants globally. Accounting concepts and conventions are known as the Generally Acceptable Accounting Principles (GAAP). Countries usually have what we referred to as accounting standards. This standard usually complies with GAAP. For example, in Nigeria, before the adoption of IFRS standards, there was the Nigeria GAAP also referred to as statements of accounting standards (SAS).

Each country’s GAAP may have variations leading to different treatment of similar transactions. To avoid this, there are the international accounting standards referred to as IFRS. The point here is that the accounting concept may vary depending on the accounting standards in use. For example, the IFRS do not include the use of conservatism in their standards. Whereas, in SAS this was a core principle that was applied.

More so, the accounting concepts are the underlying principles used in preparing accounting standards. Each accounting standard such as the IFRS number 1 and so on, complies with the principles found in those concepts. This implies that in the development of any standard, the GAAP is considered as most be adhered to by those making the standards.

2. Example of how accounting concepts are applied

There are various underlying principles. One of such is the dual aspect concept. This states that all transactions must have two folds. One account is debit and the other credited. This is an acceptable GAAP by all accountants. As a result, all accountants make use of the double entry principle in the preparations of the annual report.

3. Conclusion

As explained, concepts are applied by all accountants globally. They represent a set of principles, assumptions, rules, and bases that are followed by accountants. In fact, if an accounting standard cannot be applied on a particular business transaction, the underlying assumptions and framework are concentrated to see their application.