Importance of Accounting Concepts and Principles in Financial Accounting

Financial accounting

Contents
Introduction......................................................................................................................................2
Accounting concepts........................................................................................................................2
Rules vs. Principles-based accounting.............................................................................................3
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................7

Introduction
Accounting concepts and principles are important for any organization. It is essential for
organizations to follow the rules of accounting for preparing the accounts and financial
statements. This report includes the need for fundamental accounting concepts and its
requirements; the various rules are required for accounting. The analysis of key accounting
concepts will be discussed which are required for financial reports and provides the various
benefits to the users. Accounting concepts impact on the decisions related to final users.
Accounting concepts
The accounting process includes the recording, classifying, summarising in the way of money,
transactions and it helps in conveying the financial position of the business and it includes the
process of analysing and reporting the information in financial statements. The various principles
and concepts of accounting help in analysing the position of the business. Fundamental
accounting concepts help in providing the information to existing and potential investors and
creditors and in making rational investments, credits, and various financial decisions. Financial
accounting principles, concepts, and conventions are required for solving the problems of
business. The various accounting concepts are included in the business (Schipper, 200.
Accrual concept- In the accrual concept of accounting, it includes the revenue and it is
recognized when earned and recognize the expenses when assets are consumed.
Business entity concept- in the business, the expenses of the owner are separate from the
business expenses. In the entities, accounts are kept separately and are required even in
proprietorship and partnership to keep the account of businesses separate. The different forms of
organizations like proprietorship, partnership, companies, etc. are required to follow the business
entity concept (Schipper, 2003).
The money measurement concept of accounting includes the concept of recording the
transactions which are in monetary terms. Other transactions that do not include the monetary
transaction are not included in the statement.
Going concern concept- it is considered that the business and books are prepared with the
assumption to continue it for infinity years in future. It is analysed that the recording of assets
and liabilities must be in historical and current market value (Waymire, 2009). In the full