Accounting Concept

ACCOUNTING CONCEPT

1. Accounting Period Concept

Accounting period concept covers the period over which a financial statement has been prepared. The accounting period can be of any legth, but customarily it is related to a calendar period such as one year, one-half year, or perhaps one month.

For example, Annual financial report of Coca Cola 2016. This report presents financial statement in one year, 2016 period.

1. Accrual Concept

Accrual concept supports the idea that income should be measured at the time major effort or accomplishment occur rather than simply when cash is received or paid.

For example, If revenue is recognized, but cash has not been received, then it will be recorded among current assets as account receivable. Correspondingly, if an expense has been incurred, but cash has not been paid, it will be recorded as a current liability or account payable.

1. Realization or Recognition Concept

These rules aid the accountant in determining that a revenue or expense has occured, so that can be measured, recorded, and reported in financial reports. Under this concept, revenue is recognizes by the seller when it is earned irrespective of whether cash from the transaction has been received or not.

For example, revenue is often realized (recognized) when a product is shipped to a customer. However, in other circumstances where a customer has contracted for a special product, some portion of revenue might be recognized at the end of accounting period., even though the product is not complete and has not been delivered.

1. Matching Concept

Matching the revenues and the expenses associated with revenues in each accounting period, so that the net income can be measured. This matching of revenues and expenses allows readers to understand better the possible expenses of future revenues the organization try to earn.

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