Basic Concepts of Accounting - Q&A Format
Q: What is the Business Entity Concept?
A: The Business Entity Concept states that a business is treated as a separate legal entity from its
owner(s). Business transactions are recorded separately from the owner's personal finances.
Q: What is the Money Measurement Concept?
A: Only transactions measurable in monetary terms are recorded in the books. Qualitative aspects
like reputation or employee skills are excluded.
Q: What is the Going Concern Concept?
A: It assumes that the business will continue operations in the foreseeable future. This justifies
deferring certain expenses and depreciating fixed assets over time.
Q: What is the Cost Concept?
A: Assets are recorded at their original purchase price, not current market value. This ensures
consistency and verifiability.
Q: What is the Dual Aspect Concept?
A: Every transaction affects at least two accounts, keeping the accounting equation (Assets =
Liabilities + Capital) balanced.
Q: What is the Accounting Period Concept?
A: Financial statements are prepared for a specific period, typically one fiscal year, to assess
performance and aid audits and tax reporting.
Q: What is the Matching Concept?
A: Revenues are matched with related expenses in the same period to provide a true view of
financial performance.
Q: What is the Business Entity Concept?
A: The Business Entity Concept states that a business is treated as a separate legal entity from its
owner(s). Business transactions are recorded separately from the owner's personal finances.
Q: What is the Money Measurement Concept?
A: Only transactions measurable in monetary terms are recorded in the books. Qualitative aspects
like reputation or employee skills are excluded.
Q: What is the Going Concern Concept?
A: It assumes that the business will continue operations in the foreseeable future. This justifies
deferring certain expenses and depreciating fixed assets over time.
Q: What is the Cost Concept?
A: Assets are recorded at their original purchase price, not current market value. This ensures
consistency and verifiability.
Q: What is the Dual Aspect Concept?
A: Every transaction affects at least two accounts, keeping the accounting equation (Assets =
Liabilities + Capital) balanced.
Q: What is the Accounting Period Concept?
A: Financial statements are prepared for a specific period, typically one fiscal year, to assess
performance and aid audits and tax reporting.
Q: What is the Matching Concept?
A: Revenues are matched with related expenses in the same period to provide a true view of
financial performance.
