and accrued and unearned revenues. For example, assets are generally valued at historical cost. Any increase or decrease in the value of assets in the short period is ignored. (iv) Cost concept An asset is recorded in the books on the basis of the historical cost, that is, the acquisition cost.
Cost of acquisition will be the base for all further accounting. It does not mean that the asset will always be shown at cost. It is recorded at cost at the time of its purchase, but is systematically reduced in its book value by charging depreciation. The cost concept has the following limitations: a) In an inflationary situation, when prices of commodities increase, valuing the assets at historical cost may not represent the true position of the business.
b) The results of business units established at different dates are not comparable if assets are recorded on historical basis. c) Assets which do not have acquisition cost such as human resources are not recognised under this concept. (v) Dual aspect concept According to this concept, every transaction or event has two aspects, i.e., dual effect. For example, when Arun starts a business with cash ` , , , on the one hand, the business gets cash of ` , , and on the other hand, a liability arises, that is, the business has to pay Arun a sum of ` , , .
This is the concept which recognises the fact that for every debit, there is a corresponding and equal credit. This is the basis of the entire system of double entry book-keeping. From this concept arises the basic accounting equation, that is, Capital + Liabilities = Assets (vi) Periodicity concept This concept deals with preparing accounts for a particular period. As the proprietors, investors, creditors, employees and the government are interested in knowing the performance of the business unit periodically, it becomes necessary to select a particular period, normally one year for measuring performance.
Hence, financial statements are prepared after every accounting period and not at the end of its life. Accountancy This concept helps the business