Businesses are heavily dependent on accounting language. Several concepts run accounting language and logic. Here are a few of the more crucial ones:
First, Going Concern Concept. In this field, it is presumed that an enterprise will exist for a long time. Consequently, transactions are recorded from this perspective. Because of this, there must be differentiation between expenditure that will cause benefit over a long period, and those with benefits that will be quickly exhausted. Necessarily, if it is obvious that the concerned venture will exist only for a limited time, the accounting record will state the same.
Second, Dual-Aspect Concepts. Each transaction has two areas. If the business has acquired or otherwise procured an asset, it must have resulted in: some other asset being sacrificed; or the existence of an obligation to pay; or there is gain, which is in reality the amount that the business owes to the real owner; or the owner has given a specific amount for the procurement of the asset specified.
In proper accounting, these two effects involving the same entry will be encoded.
Third is the Realization Concept. Accounting is a true recording of transaction, if it is to give integrity to its existence as language; it puts down what has already taken place and does not give a prediction of events. However, the predicted adverse effects of events that have already taken place are usually recorded. Unless money has been actually earned----either cash has been handed over or a legal obligation to pay the specific amount agreed upon has been assumed by the customer----sale cannot be considered as having occurred.
No profit or income could likewise be considered as realized.
First, Going Concern Concept. In this field, it is presumed that an enterprise will exist for a long time. Consequently, transactions are recorded from this perspective. Because of this, there must be differentiation between expenditure that will cause benefit over a long period, and those with benefits that will be quickly exhausted. Necessarily, if it is obvious that the concerned venture will exist only for a limited time, the accounting record will state the same.
Second, Dual-Aspect Concepts. Each transaction has two areas. If the business has acquired or otherwise procured an asset, it must have resulted in: some other asset being sacrificed; or the existence of an obligation to pay; or there is gain, which is in reality the amount that the business owes to the real owner; or the owner has given a specific amount for the procurement of the asset specified.
In proper accounting, these two effects involving the same entry will be encoded.
Third is the Realization Concept. Accounting is a true recording of transaction, if it is to give integrity to its existence as language; it puts down what has already taken place and does not give a prediction of events. However, the predicted adverse effects of events that have already taken place are usually recorded. Unless money has been actually earned----either cash has been handed over or a legal obligation to pay the specific amount agreed upon has been assumed by the customer----sale cannot be considered as having occurred.
No profit or income could likewise be considered as realized.
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