Accounting Concepts & Principles

Conceptual Framework

It’s like the rulebook or brain behind accounting—it helps decide how to report and what to report. It guides how to solve new accounting problems when there’s no specific rule yet.

Entity concept

The business is separate from its owner. You only record business activities, not personal ones.

Going concern principle

You assume the business will keep operating and won’t close down soon.

Reporting Period

You split the life of a business into periods (usually 12 months) to make reports.^

Accruals

You record income and expenses when they happen, not when money is paid or received.

Prudence

Be cautious: recognize losses early, but only record gains when they're certain.

Measurement

You record things in money terms, usually at the price you paid (historical cost).

Faithful Representation

Show the truth: your info must be complete, neutral, and without errors.

Relevance

Show only information that helps users make decisions—don’t clutter.

Comparability

Use the same methods every year so people can compare.

Duality

Every transaction has two sides: a debit and a credit.

Verifiability

Every record needs proof (like an invoice or receipt).

Timeliness

Info should be provided quickly, not two years late.

Understability

Make your reports clear and simple for users.