Explaining the Six Main Accounting Concepts with Examples

Individual Report

Contents
INTRODUCTION...............................................................................................................................3
Task......................................................................................................................................................3
Explain the six main accounting concepts that are used in preparing the financial statements of an
organization by giving the examples of each.....................................................................................3
CONCLUSION....................................................................................................................................6
References............................................................................................................................................7

INTRODUCTION
The term accounting concept refers to the key element for setting the accounting
principles. Accounting theories shall be explained as the set of rules, regulations, guidelines
and principles that are mandatory for the owner of a firm in order to record the day – to – day
transactions of a business into the books of accounts (Granof and et.al., 2021). The upcoming
report highlights the elaboration on the six accounting concepts along with their examples.
Task
Explain the six main accounting concepts that are used in preparing the financial statements
of an organization by giving the examples of each.
Before heading towards the discussion on the different accounting concepts it is very
crucial to understand the definition of accounting concept. These are the body of rules and
principles which shall be followed by each and every business firm for recording the
transactions in the books of accounts. These shall be abided to bring the meaningful purpose.
There are so many notions, but the elaboration of the most common and relevant ones along
with the examples is mentioned below:
1. Business Entity Concept: It is the concept on the very ground level. The business
entity concept assumes that the business and owner are the two separate entities. They
are not supposed to be the same bodies and therefore shall not be treated as same.
This notion presupposes that the business is independent i.e., it is different from its
owner and hence to be treated segregate. It says that the owner’s point of view is not
considered to make the financial statements and thus the transactions of business is
not blended with that of the owners. The owners of the business are treated as the
payable for the company because the money they invest in the firm is the capital and
is reported in the liability side of the balance sheet (Bibee., 2020).
For example: If a business organization provides a portion of $500 to its sole shareholder.
Then the treatment for the same in the report is is reduction from the equity and the
mentioned amount would be the taxable revenue for the shareholders.