basic accounting principles or concepts


Presented below are basic accounting principles or concepts, with which hospital managers should be familiar and that they should understand if they are to be able to use accounting data and reports. It should be pointed out that accounting is not a static art, these principles are continually being questioned and reviewed and in time will be modified. However, they are currently the accepted guidelines, and while the reader may question the propriety of some, he or she should at this point accept and attempt to understand these principles so as to be able to utilize accounting data and financial reports knowledgeably.

Entity Concept

In Entity, there is a clear distinction between the business and owner. The hospital or for that matter any business is named as an entity capable of taking economic actions. The hospital is an entity separate and distinct from its employee contributors and governing board. Accounts are kept for this entity and not for the persons associated with the entity.

Continuity Concept or the Going Concern Concept

It's a corollary to the entity concept, accountants have also assumed that the entity will continue to operate for a long time in the future unless there is good evidence to the contrary. The hospital or the enterprise is viewed as a going concern to continue in operation at least in the foreseeable future.

Cost Valuation Concept

The resources in terms of land, buildings, machinery etc. that a hospital owns are called assets.-The money value that are assigned to the assets are derived from the cost concept. Thus asset is recorded at the original purchase price and this cost is the basis for subsequent accounting for the assets.

Double Entry Concept

The Accounting records should not only reflect on a cost basis of all transactions of the entity but also be constructed in such a manner as to reflect the two aspects of each transaction i.e. the change in asset forms or the change in assets and the source of financing-liabilities for e.g. if a hospital acquires an ambulance for cash not only the cash account be adjusted but also an entry must be made to show the acquisition of a fixed asset i.e. the ambulance.

Accrual Concept

Just as the cost valuation concept provides the guide for recording assets and liabilities, the accrual concept provides the guide for accounting the revenue and expenses. Simply stated the accrual concept rule says that:

i) Revenues and losses should be recorded in the period in which they are realised, and

ii) Expense is to be recorded in the period that they contribute to operations.

Matching Concept

The matching concepts build upon the logic underlying the accrual concept. The use of realisation and contribution rules allows accounting to bring together related income and expense in an accurate manner in the same accounting period.

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