Page 32 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Chapter 1

Accounting concepts

15.1 Key accounting concepts

This introduction to the accounting environment would not be complete without
explanation of some key accounting concepts which you will encounter throughout
your accountancy studies.

 Separate entity concept – This concept is applied when recording accounting
transactions for any business entity, irrespective of whether there is a legally-
recognised separation of ownership and control of that business entity.

 Accruals or matching concept – This concept refers to the basis upon which
income and expenses are recognised in the statement of profit or loss. Income
recognised in the statement of profit or loss should be matched with the
expenses incurred in earning or generating that inflow of economic benefits to
determine the profit or loss for an accounting period. Income is recognised
when it has been earned, not when the cash is received from the customer.
Expenses are recognised when they are incurred, not when the cash is paid to
the supplier.

26