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Generally Accepted Accounting Principles (GAAP) and Basic Accounting Concepts 3.3
 Accounting (Business) Entity Concept.
Under this concept, business is considered to be a separate entity from its owners.
Transactions are recorded in the books of account from the point of view of the business
and not from that of owners.
 Money Measurement Concept.
Under this concept, only those transactions and events are recorded in the books of
account that can be measured in terms of money. Transactions and events that cannot
be measured in terms of money such as quality of the staff, industrial relations, etc. are
not recorded.
 Accounting Period or Periodicity Concept.
Under this concept, life of the business is broken into smaller parts (usually a year).
Financial statements are prepared for the accounting period and communicated to
the users.
 Concept of Complete or Full Disclosure.

Under this concept, there should be complete reporting of the financial statements of all
significant information relating to the affairs of the enterprise that is understandable to
the users.
 Revenue Recognition or Realisation Concept.
Under this concept, revenue is recognised when the transaction has been entered into and
the obligation to receive the amount has been established. It is to be noted that recognition
of revenue and receipt of amount are two separate aspects. For example, in a transaction
for sale of goods, revenue is recognised when the title of the goods is transferred to
the buyer and not before. Similarly, in a transaction for rendering service, revenue is
recognised when the service has been rendered.
 Verifiable Objective (Evidence) Concept.
Objectivity means reliability, trust worthiness and verifiability means that the transactions
and events are recorded in the books of account on the basis of evidence ascertaining the
correctness thereof. In other words, it holds that recording of transactions and events
should be free from personal bias. For example, sales is evidenced by sale invoices,
purchases is evidenced by purchase bills and so on.
But, accounting is never free from personal bias because estimates have to be made. For
example, useful life of an asset is estimated and depreciated over the estimated useful
life. When an estimate is made personal bias always gets involved.
 Matching Concept or Matching Principle.

Under this concept, revenue earned and cost incurred to earn the revenue should be
matched. It means when revenue is recognised all expenses incurred (whether paid or
not) to earn the revenue should also be recognised. It also means that if recognition of
revenue is not recognised, all expenses incurred in relation to that income are also not
recognised as expense and is carried forward in the balance sheet as an asset. These
expenses are recognised as expenses, i.e., transferred to Profit & Loss Account in the
year in which revenue is recognised.