Accounting Concepts Class 11: Name the Concept in a Case and Apply It
Updated 17 October 2026 · Fact-checked
Accounting concepts are the basic assumptions on which the books are kept: business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition, matching, full disclosure, consistency, conservatism, materiality and objectivity. Most questions give a short situation and ask which concept is applied or violated, so learn each concept with its one-line trigger.
Understand Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect
Learn each concept with its trigger phrase.
- Business entity: the business is separate from its owner. *Trigger*: owner's personal expense or personal asset.
- Money measurement: only items measurable in money are recorded. *Trigger*: skill of employees, quality of management, health of the owner.
- Going concern: the business will continue; so fixed assets are shown at cost less depreciation, not at sale value. *Trigger*: no plan to close down.
- Accounting period: profit is measured for a fixed period (usually 12 months). *Trigger*: yearly, quarterly statements.
- Cost concept: assets are recorded at purchase cost, not at market value. *Trigger*: a land bought for ₹10 lakh now worth ₹30 lakh.
- Dual aspect: every transaction has two equal effects; Assets = Liabilities + Capital. *Trigger*: every debit has a credit.
- Revenue recognition: revenue is recorded when earned (goods delivered or service rendered), not when cash is received. *Trigger*: credit sales, advances.
- Matching: expenses of a period are matched with the revenue of the same period. *Trigger*: outstanding and prepaid expenses, closing stock.
- Full disclosure: all material facts are disclosed. *Trigger*: contingent liabilities noted under the accounts.
- Consistency: same methods each year. *Trigger*: method of depreciation unchanged.
- Conservatism (prudence): provide for all probable losses, do not anticipate profits. *Trigger*: stock at cost or market price, whichever is lower; provision for doubtful debts.
- Materiality: record important items separately; ignore trivial ones. *Trigger*: a pencil written off at once.
- Objectivity: records rest on verifiable documents. *Trigger*: invoice, vouchers.
How to answer. Quote the concept, say what the firm did, then say why that matches or violates the concept. Where two concepts seem to fit, choose the one whose trigger is nearest: cost concept speaks of recording value, going concern of continuing life.
Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect: key facts
- Entity and money
- Business entity: owner separate | Money measurement: only money-measurable items
- Owner's car is not an asset of the business.
- Time and value
Going concern business continues Accounting period fixed time Cost purchase price Dual aspect two effects - Assets = Liabilities + Capital.
- Recognition and matching
Revenue recognition when earned Matching expenses with revenue of the same period Consistency same methods Conservatism provide for losses, ignore profits - Prudence.
How to answer Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect questions
Name-the-concept questions are quick marks once you notice the trigger.
- 1Read the situation and find the unusual word: personal, market value, same method, provision, trivial.
- 2Match it to the concept's trigger.
- 3State the concept in one line.
- 4Explain what the firm did and why it fits (or breaks) the concept.
- 5If asked for the effect on profit, compute it.
Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect in real life
The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.
A shop owner's scooter
Suppose Mr. Menon runs a sweets shop and rides his own scooter (worth ₹50,000) to the shop. The shop pays the scooter's insurance of ₹4,000 from its cash.
Which concept is violated and what is the correct treatment?
Try it first, then show the solutionSolution
- The scooter is the owner's property, not the business's: business entity concept.
- The insurance for the owner's scooter is a personal expense: it is drawings.
Answer: Business entity: ₹4,000 is drawings, not a shop expense.
Memory hook: Shop is one person, owner is another.
Tricks to remember Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect
Short memory aids. Say each one aloud once, then use it on a question the same day.
Cost concept trigger
Market value goes up? Books still show cost.
Use it when: Asset questions.
Prudence trigger
Provide for probable losses; never book expected profits.
Use it when: Conservatism.
Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect: solved examples
Ordered from board level to HOTS. Try each one before you open the solution.
Example 1: Name the concept · 1 mark · MCQBoard level
A firm does not record the efficiency of its manager in the books because it cannot be measured in money. Which concept is followed?
(a) Going concern
(b) Money measurement
(c) Cost
(d) Consistency
Try it first, then show the solutionSolution
- Only items measurable in money are recorded.
Answer: (b) Money measurement
Example 2: Concept behind each · 3 marks · Short answerBoard level
Name the concept behind each: (i) land bought for ₹8,00,000 is still shown at ₹8,00,000 though worth ₹20,00,000; (ii) stock is valued at cost or market price, whichever is lower; (iii) machinery is not valued at its scrap value in the balance sheet. (3 marks)
Try it first, then show the solutionSolution
- (i) Cost concept.
- (ii) Conservatism (prudence).
- (iii) Going concern: the business is assumed to continue and use the machine.
Answer: (i) Cost (ii) Conservatism (iii) Going concern
Example 3: Revenue recognition and matching · 4 marks · Short answerHarder board level
Dhruv Traders delivered goods worth ₹90,000 on 28 March 2025 and received payment on 5 April 2025; it paid ₹12,000 insurance on 1 January 2025 for 12 months. Taking the year ended 31 March 2025, state the revenue recognised and the insurance charged for the year, naming the concepts. (4 marks)
Try it first, then show the solutionSolution
- Revenue is recognised when goods are delivered (28 March), not when cash is received: ₹90,000 is revenue of the year (revenue recognition).
- Insurance of ₹12,000 covers 12 months from 1 January; for 3 months (January to March) = 12,000 × 3/12 = ₹3,000 is charged; ₹9,000 is prepaid (matching).
Answer: Revenue ₹90,000; insurance charged ₹3,000 (₹9,000 prepaid).
Example 4: Violation of consistency · 4 marks · Short answerHarder board level
A firm used straight line depreciation for six years and in year 7 switched to written down value without disclosure, which reduced profit. Which concepts are violated, and what should the firm do? (4 marks)
Try it first, then show the solutionSolution
- Consistency: methods should not be changed from year to year without reason.
- Full disclosure: the change and its effect should have been disclosed.
- It should continue with the same method, or if a change is needed, disclose the change and its effect on profit.
Answer: Consistency and full disclosure are violated; disclose any change and its effect.
Example 5: Which concept fits? · 4 marks · Short answerHOTS / competency
A trader writes off a calculator costing ₹250 as an expense in the year of purchase, though it will last 5 years, but capitalises a machine of ₹4,00,000. Name the concept and explain why the two treatments are different. Would a change in the size of the business change the answer? (4 marks)
Try it first, then show the solutionSolution
- Materiality: the amount is trivial for a trader, so it is expensed at once to save effort.
- The machine is large and affects profit and the balance sheet, so it is capitalised and depreciated.
- Materiality depends on size: ₹250 might be material for a tiny shop; so the test is the effect on decisions, not a fixed rupee amount.
Answer: Materiality; the amount's importance relative to the firm decides.
Where students lose marks in Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect
The slips examiners see most often, and what to write instead.
Mistake: Naming cost concept for going concern
Both mention fixed assets.
Wrong working
Asset shown at cost less depreciation because of cost concept.
Right working
Cost concept: recorded at purchase price. Going concern: continuity, so depreciation spreads cost over life.
Do this: Look for what the situation emphasises.
Usually costs: 1 mark
Mistake: Recognising revenue on receipt of cash
Thinking income means money.
Wrong working
Revenue for March = cash received in March.
Right working
Revenue is recognised when goods are delivered or services are rendered.
Do this: Look at delivery date.
Usually costs: 1 mark
Mistake: Not giving the reason
Writing only the concept.
Wrong working
Conservatism.
Right working
Conservatism: stock valued at the lower of cost and market value so that a probable loss is provided for.
Do this: Concept plus one line.
Usually costs: 1 mark
Exam tips
- Underline the trigger words in the case before choosing the concept.
- For 3-mark questions give concept and reason for each part.
- Avoid using one concept for two different situations unless they really match.
- Remember dual aspect is the base of double entry.
Practice questions on Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect
Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.
Q1 · 1 mark · MCQBoard level
The concept that assumes the business will continue for the foreseeable future is:
(a) Cost
(b) Going concern
(c) Matching
(d) MaterialityHint
Continuity.
Answer
(b) Going concern
Q2 · 3 marks · Short answerHarder board level
A firm bought a computer for ₹60,000 and the same model is now sold for ₹45,000. The firm's balance sheet shows it at cost less depreciation. Name the concept and explain why the market fall is ignored. (3 marks)
Hint
Which price is recorded?
Answer
Cost concept (supported by going concern): the asset is recorded at purchase price less depreciation because cost is verifiable (objectivity) and the computer will be used, not sold. Market value changes are not recorded.
Q3 · 3 marks · Short answerHarder board level
Explain, with a numerical illustration, how the dual aspect concept works when a business buys furniture of ₹40,000 on credit from Shree Furniture. (3 marks)
Hint
Two equal effects.
Answer
Furniture (asset) increases by ₹40,000; creditors (liability) increase by ₹40,000. Assets = Liabilities + Capital stays balanced: before, assets A = L + C; after, assets increase by 40,000 and liabilities increase by 40,000.
Q4 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Sale of goods on credit is recorded as revenue even though cash is not received.
Reason (R): Revenue is recognised when it is earned, not when cash is received.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.Hint
Revenue recognition.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q5 · 4 marks · Short answerHOTS / competency
A firm received an advance of ₹50,000 on 20 March 2025 for goods to be delivered in June 2025, and recorded it as sales of the year ended 31 March 2025. A second firm bought stock for ₹1,00,000, now valued at ₹1,20,000 in the market, and values closing stock at ₹1,20,000. Identify the concept violated in each and give the correct treatment. (4 marks)
Hint
Revenue recognition and conservatism.
Answer
First: revenue recognition is violated; the amount is an advance (liability) and becomes revenue when goods are delivered in June. Second: conservatism is violated; stock should be valued at the lower of cost (₹1,00,000) and market value (₹1,20,000), i.e. ₹1,00,000, so unrealised profit is not recorded.
Test your recall
Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.
1.Which concept separates owner and business?Show answer
Business entity concept.
2.Which concept records assets at purchase price?Show answer
Cost concept.
3.Which concept matches expenses with revenue?Show answer
Matching concept.
4.Which concept provides for losses but not profits?Show answer
Conservatism.
5.Which concept supports double entry?Show answer
Dual aspect.
Basic Accounting Concepts: Entity, Money Measurement, Going Concern, Cost and Dual Aspect: frequently asked questions
How many accounting concepts are there?
The chapter lists thirteen basic concepts, from business entity to objectivity.
What is the difference between conservatism and materiality?
Conservatism provides for probable losses; materiality decides whether an item is important enough to be shown separately.
Why is stock valued at cost or market value, whichever is lower?
To avoid showing an unrealised profit: this is conservatism.