Do you know accounting is considered the language of communication in business? Corporate firms, government sectors, and any other small or big conglomerates interact on their financial status or affairs through accounting. Being a finance management student, you must be well acquainted this “language of business.” And, your familiarity is incomplete till you learn these five accounting concepts.
Popular Accounting Concepts for Finance Students
Financial Statements are important for businesses, and therefore, most of the companies hire scholars to prepare the statements on their behalf. It may happen that you are hired one day by a big brand. Then, you have to conduct an entire case study for finding the accurate data and prepare an assignment with those figures and stats. For the later, you will have the provision of seeking help from online experts, but what about the case study? Self-help will be the only option and intelligence lies in learning these business concepts, beforehand. Take a close look at each of them.
- Idea of Money Measurement: This theory limits accounting to quantitative records in terms of monetary transactions. Thus, sales policy, employee-employer relationship, labor unrest and more such ideas, even though hold vital significance in business, do not have a place in accounting. There’s one more limitation in this concept that says money-value is invariable, which is contrary to reality. Fluctuation in money-value is inherent. For example, today if you buy a land for 10,000 USD, it will be five or six times the current rate in 2026.
- Theory of Business Entity: This concept explains how a business is different from a proprietor. Both the parties should be treated separately, i.e. business transactions should not be mixed with an investor’s capitalization. If private financial affairs are recorded in the business books along with commercial pecuniary statements, then the true picture of a business cannot be envisioned. Business Entity concept largely helps an accountant in predicting the earning capacity of any company. You must know it well or else you cannot project it accurately.
- Concept of Going Concern: How longer a business will run can be assumed through this concept. If a firm is experiencing profitable footing, it is labeled as a “going-concern” and the continuity of activity is assumed accordingly. Going concerns are positioned away from liquidation in the accounting reports if the year-end revenue shows a positive profit line. For an ongoing business, the current clearance value is an immaterial factor. Rather, the original cost of the fixed assets are recorded, and subsequently, depreciated in a pertinent manner.
- Cost Concept in Accounting: Cost concept comes into action whenever an asset is acquired for a certain price. Under this theory, the expended amount is always recorded in the account book even if its market value is different. For example, if you have acquired a business asset for 5000 USD, whose market rate is 5500 USD, it will be recorded as 5000 USD and not as 5500 USD. All through the asset’s life, it will be shown in the balance sheet as “cost price minus depreciation value.” This recorded value is defined as “book value” in accounting.
- Accounting period Concept: In any of the business undertakings, accounting is an enduring process and every entrepreneur expects a ROI report of their respective businesses. Accountants are likely to choose shorter intervals for measuring the finest changes in profit margin. Generally, 1 year is considered an ideal period, although some financial executive go for 6 months or 2 years interval, as well. This period of time is denoted as accounting period, which should not be too long or too short.
Accounting concepts are crucial for students pursuing Finance management. If you have to write an essay, soon in sometime, positively implement these accounting concepts to get the best result. Let experts organize the accounting details for you.