An Accounting Entity is an economic activity owned by one or more owners, Under this concept the business affair of the organization are kept serparte from the affair of the owners and other organizations. This means that when the owners of the business take cash or goods for their own use they must record it as Drawings. In the accounting records of the entity.
Monetary Measurment.
Money values are used in an accounting system to record all financial events affecting the entity. Everything is measured in dollar terms. Users of accounting information must understand that only things that can be valued this way are represented. E.g the value of inventory is include but the state of the owner's health is not include.
Historical Cost.
The historical Cost Concept means that transactions are recorded at the dollar value of money at the time they took place. For example a machine is recorded at the original cost when it was purchased. The machine may increase or decrease in value but the historical cost remains in the accounts, reduced only by depreciation . Some assets, such as animals born on a farm are not purchased, They can still be recored in the accounts of an entity but must be given a dollar value and the basis of this valuation must be recorded.
The going concern.
The going concern concept assumes that the business will continue to operate into the foreseeable future - e.g fixed assets are valued at their historical cost not at market value than is shown in the accounts.
The Accounting Period.
The accounting Period concept Is used to divide the life of the business into equal lengths of time. This is often one month for management accounts and one year for accounting to shareholders and government agencies.
Accrual Accounting.
The Accrual Accounting concept means that transctions are recognised when they occur and are reported in the accounting period to which they relate. This differs from cash accounting where only transactions resulting in cash flows are recorded.