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Accounting Equivalence Concept

According to this concept assets owned by the business must be equal to the funds contributed by
the businessman in the form of capital. These days when business is to be carried on a large scale,
funds may be borrowed from third parties to supplement the funds contributed by the proprietor.

Realisation Concept

According to this concept income is treated as being earned on the date on which it is realized i.e.
the date on which goods or services are transferred to the customers. Since this exchange of goods
or services may be for cash or on credit, it is not important whether cash has actually been

received or not.

Objective Evidence Concept or Verifiable Objective Concept

This concept justifies the significance of verifiable documents supporting various transactions.
According to it, each transaction should be supported by objective evidences like vouchers.
Objective evidence, here, means evidence free from bias of the accountant.

Materiality

This principle emphasizes that only those transactions should be recorded which are material or
relevant for the determination of income from the business. All immaterial facts should be
ignored.

Full Disclosure

This concept implies that financial statements should disclose all material information which is
required by the proprietor and other users to assess the final accounts of the business unit

Consistency

This principle requires that accounting practices, methods and techniques used by a business unit
should be consistent. A business unit can adopt any accounting practice, but once a particular
practice is chosen, it must be used for a number or years.

Conservatism or Prudence

This principle is nothing but a formal expression of the maxim “Anticipate no profits and provide
for all possible losses.” In other words, it considers all possible losses but ignores all possible
profits.