e Assets are not stated at their liquidation value Cost Concept It is a very

E assets are not stated at their liquidation value

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e Assets are not stated at their liquidation value. Cost Concept - It is a very important concept based on the Going Concern Concept. We book the value of assets on the cost basis, not on the net realizable value or market value of the assets based on the assumption that a business unit is a going concern. No doubt, we reduce the value of assets providing depreciation to assets, but we ignore the market value of the assets. The cost concept stops any kind of manipulation while taking into account the net realizable value or the market value. On the downside, this concept ignores the effect of inflation in the market, which can sometimes be very steep. Still, the cost concept is widely and universally accepted on the basis of which we do the accounting of a business unit. Page 2 of 5
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f Financial Statements are prepared on an annual basis. Accounting Period Concept - The accounting reports measure activities for a specified interval of time called the accounting period, which is usually one year and therefore termed as annual reports. Interim reports in between may be compiled especially for internal users g Expenses are recognized in the same period as the related revenues. Matching Concept - Matching concept is based on the accounting period concept. The expenditures of a firm for a particular accounting period are to be matched with the revenue of the same accounting period to ascertain accurate profit or loss of the firm for the same period. This practice of matching is widely accepted all
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  • Summer '16
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  • Balance Sheet, Generally Accepted Accounting Principles, Money measurement concept, Equity and Liabilities, Assets – Owner’s Equity

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