The use of accounting concepts in a variety of situations: preparation of financial statements, asset valuation, depreciation of non-current assets, inventories (cost or net realisable value), recording purchase of non-current assets, recording transactions in ledger accounts, goods sold on a sale or return basis
Accounting concepts are rules that guide how accountants record and report financial information. Each concept applies to specific situations, such as valuing stock, recording assets, or preparing financial statements.
Real World
Amazon records its warehouses at historical cost rather than current market value — the cost concept prevents upward revaluation that would inflate assets and mislead investors reading the balance sheet.
Exam Focus
Always state which concept applies, then explain the consequence of not applying it — two-part answers score both AO1 and AO2 marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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