Some other accounting concept
1.Cost concept- The basic principle of cost concept is
(A) the assets should be recorded in accounting book on the same price on which it is purchased
(B) The price should be a base for the following years on which it was purchased at the year of purchasing.
According to (A) part of this concept it would be
unimportant that what was the real-value of the assets at the time of purchasing, may it be low or high, because the amount which is given from the business to get that property is thenactual price of it for business. This concept believes thatbalance sheet is not prepared to know that on which price the properties can be sold, if they are sold. On the basis of (B) part of the cost concept it will be said that the assets should be shown as it was at the time of their purchasing year and in the following years the decrease in price is shown as write off by depreciation method from the cost price, and at the end of their lifetime these assets are sold as a waste material. An accounting record is done of loss or profit on its selling and the assets disappear from the balance sheet. Cost Accounting indicates towards
if there is no expense for getting any as-
sets its value is zero for business so these assets can not be shown in balance sheet. For example while conducting business” knowledge, technical efficiency and skillfulness increases, the reputation of business increases, the positive
changes which appears to location of business, all these things are very beneficial and important for business but we don’t have to give anything for them, so these can not be shown as assets. In the same way there may be some events
which affect negatively on business and give indirect loss. to business. But directly there is no expenditure on it so there is no effect on accounting records, as-some astute
managers fleet from business, some important officers passes away in accident or becomes insane, etc. are some incidents which affect the business negatively but there may be no accounting record of it in books.
2. Realisation concept- The Realisation concept of accounting principle expounds this principle that only those dealings and transactions are recorded in Accounting books which have really happened. The transactions which are only of probable are considered imaginary so their accounting can not be made on this basis that they would become real after some time. The basic thought of this concept is that only those profits should be included in Accounting principles which are already recover or the right of recovery has been got. Thus we can say that the transactions of sell if recorded in accounting books only after getting the cash in the condition of cash selling; and in the condition of credit selling after taking the responsibility of paying the amount by the purchaser. At the end of year the market price of remained stock may increase a lot but it is shown on its cost price in accounting books because the real profit will be received only when the total material will be sold.
3. Matching of cost and revenue concept- The profits are the inspiration of a businessman. Profit is the reward for which he takes risk, toils day to night. So the account experts always try to develop various techniques of measuring profits. This concept believes that the order of cost and revenue is continuously goes on in business, and to know the profit in any definite period, it can be done only by matching the concerned cost and revenue of that particular period. When the Accounting experts broad over the cost and revenue they not only think over on the expenditures which are spent as monitory to get that revenue or whose paying responsibility has been taken up, but to compare the cost and revenue, the following facts are taken care-
(i) Proper Recognition of Revenue- To recognize revenue first of all it is seen that in which period the revenue is received and the so called concerning receipt belongs to which period. The recognition of revenue is done on sales basis, cash basis or on production basis. Among these generally the sales basis is used but in the condition of sales on hire purchase it is done on cash basis. The contracts which are more than one year’s period the revenue recognition is done on production basis.
(ii) Matching with cost- After the proper recognition of revenue it is compared to its cost. So all the expenditures which are invested to get the revenue should be deducted from revenue. Along with this to measure the income correctly all the losses, which are concerned to the matching of cost-revenue period should be deducted. After deducting the remaining amount is called income.
The concept matching of cost and revenue is called Accrual concept also,