In order to prepare the financial statements, it is important to adhere to certain fundamental accounting concepts. Going Concern, unless there is evidence to the contrary, it is assumed that a business will continue to trade normally for the foreseeable future.
- Accruals and Matching, revenue earned must be matched against expenditure when it was incurred.
- Prudence, if there are two acceptable accounting procedures choose the one gives the less optimistic view of profitability and asset values.
- Consistency, similar items should be accorded similar accounting treatments.
- Entity, a business is an entity distinct from its owners.
- Money Measurement, accounts only deal with items to which monetary values can be attributed.