Page 25 - ISCDEBK-XI

3.4 Double Entry Book Keeping—ISC XI
There are expenses which are not directly associated with the revenue (for example,
salary paid to staff). These expenses are recognised as expense in the year they
are incurred because the benefit of such expenses expires with the expiry of
the accounting year.
 Historical Concept.
Under this concept, assets are recorded in the books of account at the price that is paid
to acquire (purchase) the asset. It includes all expenses incurred to make it ready for
use. For example, cost of machinery will include purchase price, freight cost, octroi,
installation expenses of machinery, etc.
 Accrual Concept.

Under this concept, transactions are recorded at the time when they take place and not
when the settlement of the transaction takes place. Assuming the liability or recognising
the asset and payment made or received are separate from each other.
Accrual Concept, along with Going Concern Concept and Consistency Concept, is a
fundamental accounting concept. It is recognised to be the fundamental accounting
concept by the Accounting Standard-1, Disclosure of Accounting Policies.

Accrual Concept is presumed to have been followed. It means that while preparing the
financial statements it is presumed to have been followed unless it is stated otherwise in
the financial statements, i.e., the enterprise is not a going concern. If the enterprise is not
a going concern, the financial statements will be prepared differently than the regular
financial statements.
 Dual Aspect Concept.
According to this concept, every transaction has two aspects, a debit and credit aspect
and the amounts under the two aspects are equal.
 Materiality Concept.
Under this concept, transactions are recorded in the books of account on the basis of
materiality. An item is regarded as material if there is reason to believe that knowledge
of it would influence the decision of an informed user.
 Consistency Concept.
Under this concept, accounting policies and practices once adopted and applied should
be followed consistently year after year. However, it does not mean that accounting
policies and practices once adopted and applied cannot be changed by the enterprise.
Accounting policy may be changed under the following three situations:
(i) If there is a change in law because of which accounting policy needs to be changed, or
(ii) there is a change in the accounting standard, or
(iii) the change will lead to better presentation and reporting.
Consistency Concept along with Going Concern Concept and Accrual Concept is a
fundamental accounting concept. It is recognised to be the fundamental accounting
concept by the Accounting Standard-1, Disclosure of Accounting Policies.