Difference Between Accounting Concepts and Accounting Principles (With Table)

Accounting is the process of keeping records of financial transactions related to a business. The Accounting process includes various factors such as summarizing, analyzing, and recording different transactions. Accounting concepts and Accounting principles are the guidelines provided by US GAAP, that should be followed while describing any financial information.

Accounting Concepts vs Accounting Principles

The main difference between Accounting concepts and Accounting Principles is that Accounting concepts deal with maintaining accounts. On the other hand, Accounting Principles deal with the preparation of financial statements.

The Accounting concept is defined as a process of keeping records of financial transactions of relevant businesses or different business entities. Accounting concepts include different processes like recording data, summarizing, analyzing, and reporting the final financial transactions related to the business.

Accounting principles are guidelines that should be subsequently followed, which are issued by US GAAP, that should be followed while describing any financial information. In this concept, transactions are recorded during the accounting period when they occur and not during when the cash flow is associated with that.

Comparison Table Between Accounting Concepts and Accounting Principles

arameters Of ComparisonAccounting conceptsAccounting Principles
DefinitionThe Accounting concept is defined as a process of keeping records of financial transactions of relevant businesses or different business entities.Accounting principles are guidelines that should be subsequently followed, which are issued by US GAAP, that should be followed while describing any financial information.
AimThe Accounting concept is designed to record financial transactions.Accounting principles are designed to report financial statements in accordance with the rules.
UseAccounting concepts are used for keeping private records of companies or businesses.Accounting principles are used to provide private records to external sources for verification.
Hierarchy ProcessAccounting concepts are considered as a basis for preceding Accounting Principles.Accounting principles make successive results from accounting concepts and ensure financial statistics.
ConclusionAccounting provides conceptual data, which is recorded for making the financial statement.Accounting Principles support business processes by analyzing data and its risk and making the correct decision.

What is Accounting Concept?

Accounting concepts are defined as the process of keeping records of financial transactions of related businesses or different business entities.

There are different accounting concepts, each with an important role. some important concepts are:

  1. Business Entity Concept: This concept assumes that the business and the business owner are two distinct and separate units. Therefore, the owner’s transactions and business transactions are completely different. For example, when a business owner does any business investment it is recorded as a liability but if he removes cash for his personal use it is recorded in accounting books from the organization’s point of view and not the person owning the business.
  2. Going concern concept: this concept accepts that the company will remain in business for a long time and therefore, the revenue will be postponed to a different period.
  3. The Matching concept: this concept emphasizes that expenses related to a particular income need to be recorded in the same period ensuring the transactions are fully accounted for.
  4. Materiality Concept: This concept is intended to report all material transactions.
  5. Dual Entry concept: The double entry concept emphasizes recording two aspects of the same transaction. This concept is also considered the heart of financial accounting.
  6. Conservatism: it states that revenue must be recorded only when it is reasonable and only when it will be perceived in the future.

There are many other concepts and one must follow them while recording any data in Accounting Concepts.

What is Accounting Principle?

Accounting principles are guidelines that should be subsequently followed, which are issued by US GAAP, that should be followed while describing any financial information.

For ensuring the final reports, US GAAP issued financial accounting guidelines in the United States. The most common of these principles are:

  1. Principle of Conservatism: State that you should recognize expenses and liabilities immediately, even if they have some reliability, and that you should retain the collection of income and assets until you recognize them. This results in a more conservative profit and loss report.
  2. Consistency Principle: The Consistency Principle states that once you have followed an accounting principle, you should continue to do so in the future. This idea gives you more consistent reporting results.
  3. The Economic Entity Principle: the economic entity principle states that you should keep different transactions for different business organizations. This prevents the financial results of multiple organizations from intertwining.
  4. The Full Disclosure Principle: The full disclosure principle states that you should assimilate the financial statements of an organization and also the information that might affect the reader’s understanding regarding those statements. This idea has led to the formation of a large number of memo declarations, resulting in many financial statements.

This principle makes the financial report complete, compatible with the previous year’s data.

Main Differences Between Accounting concepts and Accounting Principles

  1. Accounting concepts are defined as the process of keeping records of financial transactions of related businesses or different business entities. Whereas Accounting principles are guidelines that should be subsequently followed, which are issued by US GAAP, that should be followed while describing any financial information.
  2. Accounting provides conceptual data, which is recorded for making the financial statement. Accounting principles, on the other hand, support business processes by analyzing data and its risks and making the right decisions.
  3. Accounting concepts are used for keeping private records of companies or businesses. Whereas Accounting principles are used to provide private records to external sources for verification.
  4. The accounting concept is designed to record financial transactions on the converse, Accounting principles are designed to report financial statements following the rules.
  5. Accounting concepts are considered to underlie previous accounting principles, where Accounting principles get the successive results of accounting concepts.

Conclusion

Both Accounting Concepts and Accounting Principles are important for generating accounting statements. It is important to record data properly and understand their view of point.

Guidance is provided to investors about caution when understanding profit and loss statements. One should be careful while generating accounting statements.

References

  1. https://journals.co.za/doi/abs/10.10520/EJC72582
  2. https://www.jstor.org/stable/2490520