Businesses are heavily dependent on accounting language. Several concepts run accounting language and logic. Here are a few of the more crucial ones:
First, Going Concern Concept. Accounting is of the assumption that any business enterprise will be around for a long period. Because of this transactions are encoded accordingly. This necessitates setting the difference between expenditures that will cause long term benefits, on the one hand, and those that will cause short term ones. Obviously, if the concerned business activity is determined to exist only for a limited time, the accounting record will record this reality.
It is this that necessitates distinction between expenditure that will render benefit over a long period and that whose benefit will be exhausted quickly, say within the year. Of course, if it is certain that the concerned venture will exist only for a limited time, the accounting record will be kept accordingly.
In proper accounting, these two effects pertaining to the entry will be stated.
Third is the Realization Concept. Accounting is a historical record of transaction; it records what has happened. It does not anticipate events though anticipated adverse effect of events that have already occurred are usually recorded. This is of great importance in stopping business firms from their profits by recording sales and income that are likely to accrue.
No profit or income could likewise be considered as realized.
