Accounting Concepts (Edexcel IGCSE Accounting)
Exam board Pearson Edexcel · IGCSEUpdated 2026-01-05
Spec point —
IGCSE_ACCOUNTING:S1.121
Accounting concepts
What are accounting concepts?
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These are the rules, principles and guidelines used when preparing the financial statements of a business
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These are used by all accountants internationally
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Accountants must comply with these concepts so that:
- Financial statements can be accurately compared with those of similar businesses
- The owner(s) of a business can compare the year-by-year performance of the business
- Financial statements give an accurate reflection and are free from bias
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There are four basic accounting concepts you need to be aware of
| Concept | Definition |
|---|---|
| Going concern | The assumption that a business will continue to operate into the foreseeable future by undertaking its current trading activities |
| Historic cost | Assets and liabilities are valued at the cost of the original transaction and kept as such on the financial statements |
| Duality | Each transaction is recorded using two accounting entries of opposite and equal values |
| Realisation | Business transactions are only recorded in the financial statements when a payment is made or the ownership has been transferred |
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There are six further accounting concepts you need to know more about are:
- Business entity
- Money measurement
- Materiality
- Consistency
- Accruals (Matching)
- Prudence
Business Entity
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the business entity concept?
| Definition | Financial statements only record and report on business activities |
|---|---|
| Applications | - The records relate to the activities of one specific business - These records and reports must not include any personal assets, expenses and liabilities of the owner - Personal activities must be kept separate from the business - Assets invested into the business by the owner are recorded in the equity account - Assets withdrawn from the business by the owner are recorded in the drawings account |
Money Measurement
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the money measurement concept?
| Definition | Financial statements only contain information about the transactions involving money |
|---|---|
| Applications | - Non-monetary information is not reported on the financial statements - Information such as experience of the staff and employee satisfaction are not included in the statements |
Materiality
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the materiality concept?
| Definition | Transactions which have a low monetary value can be grouped rather than entered into separate accounts |
|---|---|
| Applications | - Small expense items such as window cleaning may be grouped as sundry expenses - Non-current assets which are low cost such as staplers and calculators are treated as expenses on the income statement and not recorded as capital expenditure |
Consistency
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the consistency concept?
| Definition | When a business chooses a method for a particular item, it should continue to use that method each year |
|---|---|
| Applications | - The method of depreciation used for a particular type of non-current asset should be used for that type each year - The method for deciding on a provision for irrecoverable debts should be used each year - The method can be changed if there is a good reason - But this decision and its impact needs to be recorded |
Accruals
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the accruals concept?
| Definition | Incomes and expenses must be matched to the year to which they relate or in which the benefit is gained |
|---|---|
| Applications | - Incomes and expenses must be adjusted on the income statement for accruals and prepayments to match the year in which the benefit was gained - Non-current assets are depreciated and the yearly depreciation is charged as an expense to match the cost to the year of its useful life - A provision for irrecoverable debts is used to reduce the profit by an amount that is unlikely ever to be received |
Prudence
Spec point —
IGCSE_ACCOUNTING:S1.121
What is the prudence concept?
| Definition | A business should not overstate its profit or its net assets |
|---|---|
| Applications | - A provision for irrecoverable debts is used to account for the debts that are unlikely to be paid - Non-current assets are depreciated to give a realistic net book value - Irrecoverable debts are written off if it is unlikely that the business will be able to retrieve the money |
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