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.

2. 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.

3. 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.

4. 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.
For example, a hospital pays $20,000 per month to 5 of its doctors. Monthly sales are
$500,000. $100,000 worth of monthly salaries should be matched with $500,000 of revenue
generated.

5. Money Measurement Concept

Money measurement concept requires that companies include in the accounting records
only transaction data that can be expressed in money terms. This assumption enables
accounting to quantify (measure) economic events.
For example, the health of a company’s owner, the quality of service, and the morale of
employees are not included. The reasons: Companies can not quantify this information in
money terms. Though this information is important, companies record only events that can
be measured in money.

Reference:

Weygandt Jerry J; Paul D. Kimmel; Donald E. Kieso, Accounting Principles 12e, John-Wiley & Sons, Inc.