Accounting Principles, Concepts and Conventions !

The Accounting Principles, concepts and conventions form the basis for how business communication are recorded. A number of principles, concepts and conventions are developed to ensure that accounting information is presented accurately and consistently. Some of these concepts are briefly described in the subsequent sections.

 Revenue Realization

According to Revenue Realization concept, revenue is measured as the income earned on the date, when it is realized. As per this concept, unearned or unrealized revenue is not taken into account. This concept is vital for determining income pertaining to an accounting period. It reduces the possibilities of inflating incomes and profits.

Matching Concept

As per this concept, corresponding of the revenues earned during an accounting period with the cost associated with the relevant period to determine the result of the business concern is carried out. This concept serves as the basis for finding accurate profit for a period which can be distributed to the owners.

 

Accrual

Under Accrual method of accounting, the transactions are recorded when earned or incurred rather when collected or paid i.e., transactions are recorded on the basis of income earned or expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at the time of sale and treats the bill amount as revenue, even though the payment may be received soon after.