(7) Revenue recognition concept : ( Realisation concept) According to this principle revenue is considered to have been realised when a transaction has been entered and obligation to receive the amount has been established. In other words when we receive right to receive revenue than it is called revenue is realised. For example, sales made in March, 2010 and receives amount in April, 2010. Revenue of these sales should be recognised in February month, when the goods sold. For example commission for the March, 2010 even if received in April 2010 will be taken into profit and loss A/c of March, 2010. Similarly if rent for the April, 2010 is received in advance in March, 2010 it will be taken the profit and loss A/c of the financial year of March, 2011.
(8) Matching concept : The matching concept states that expense incurred in an accounting period should be matched with revenues during that period. It follows from this that revenue and expenses incurred to earn these revenues must belong to the same accounting period. For example, salary for the month of March, 2010 paid in April, 2010 is recorded in the profit and loss A/c of financial year ending March, 2010 and not in the year when it realized. Similarly we records cost of goods sold and not the goods purchased or produced. So the cost of unsold goods should be deducted from the cost of goods produced or purchased.
(9) Full disclosure concept : Apart from legal requirement good accounting practice require all material and significant information must be disclosed. Financial statements are the basic means of communicating financial information to its users for taking useful financial decisions. This concept states that all material and relevant fact and financial performance must be fully disclosed in financial statement of the business. Company‟s act 1956 has provided a format for making profit and loss A/c and balance sheet, which needs to be compulsorily adhered to for preparation of financial statement. Disclosure of material information results in better understanding. For example, the reasons for low turnover should be disclosed.
(10) Consistency concept :This concept states that accounting practices followed by an enterprise should be uniform and consistent over a period of time. For example if an enterprise has adopted straight line method of charging depreciation then it has to be followed year after year. If we adopt written down value method from second year for charging depreciation than the financial information will not be comparable. Consistency eliminates the personal bias helps in achieving the results that are comparable. However consistency does not prohibits the change accounting policies. Necessary changes can be adopted and should be disclosed.
(11) Conservatism concept (Prudence concept) : This concept takes into consideration all prospective losses but not the prospective profit. It means profit should not be recorded until it realised but all losses, even those which have remote possibility are to be recorded in the books. For example, valuing closing stock at cost or market value whichever is lower, creating provision for doubtful debts etc. This concept ensures that the financial statements provide the real picture of the enterprise.
(12) Materiality concept : This concept states that accounting should focus on material fact. Whether the item is material or not shall depend upon nature and amount involved in it. For example, amount spent of repair of building Rs. 4,00,000 is material for enterprise having the sales turnover of Rs.1,50,000 but not material for enterprise having turnover of Rs. 25,00,000. Similarly closure of one plant material but stock eraser and pencils are not shown at the asset side but treated as expenses of that period, whether consumed or not because the amount involved in it are low.
(13) Objectivity concept : This concept states that accounting should be free from personal bias. This can be possible when every transaction is supported by verifiable documents. For example, purchase of machinery for Rs. 30,000 should be supported by the voucher and should be recorded in the 12 books of accounts. Similarly other supporting documents are cash memo, invoices, receipts provides the basis for accounting and auditing