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This is a summary of Fundamental Accounting Concepts under the Accounting Basics tutorial series. You can always check out the full lessons anytime.

Underlying Assumptions

Underlying assumptions in accounting provide the basis in preparing, presenting and interpreting general-purpose financial statements. These assumptions are held true when accountants prepare the financial statements and when users read them. The underlying assumptions include:

1. Accrual Basis Accounting – Income is recognized when earned regardless of when collected and expenses are recognized when incurred regardless of when paid.
2. Going Concern – Also known as continuing concern concept or continuity assumption, it means that a business entity will continue to operate indefinitely.
3. Accounting Entity Concept – A specific business enterprise is treated as one accounting entity, separate and distinct from its owners.
4. Time Period Assumption – The indefinite life of an enterprise is subdivided into time periods or accounting periods which are usually of equal length for the purpose of preparing financial reports.
5. Monetary unit assumption – Transactions are recorded in terms money (quantifiability), in a currency with a stable purchasing power (stability of the dollar). Full Tutorial

Elements of Accounting

The elements of accounting pertain to assets, liabilities, and capital. Assets are resources owned by a company; liabilities are obligations to creditors and lenders; and capital refers to the interest of the owners in the business after deducting all liabilities from all assets.

Assets can be classified as current or non-current. An asset is considered current if it is for sale, if it can be realized within 12 month from the end of the accounting period or within the company's normal operating cycle if it exceeds 12 months, or if the asset is cash. Examples of current assets are: Cash and Cash Equivalents, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses. Assets that do not meet the criteria to be classified as current are, by default, non-current assets. Examples of non-current assets are: Long-term Investments; Property, Plant and Equipment; and Intangibles.

Liabilities can also be classified as current or non-current. A liability is considered current of they are payable within 12 months from the end of the accounting period or within the company's normal operating cycle if it exceeds 12 months. Examples of current liabilities are: Accounts Payable, Short-term Notes Payable, Tax Payable, Accrued Expenses, and other short-term obligations. Non-current liabilities include those that do not meet the above criteria. Examples of non-current liabilities are: Loans Payable and Bonds Payable which are long-term in nature, and Deferred Tax Liabilities.

Capital refers to the interest of the owner/s of the business. The owner's interest is the value left of the assets after the obligations to creditors and lenders are settled. Capital is increased by contributions by the owner/s and income. It is decreased by withdrawals by owners (or dividends for corporations) and expenses.

Income refer to an increase in assets or decrease in liability, and increase in capital other than that arising from contribution by owner/s. Examples of income accounts include: Sales, Service Revenue, Professional Fees, Interest Income, Rent Income, and others.

Expenses result in decrease in assets or increase in liabilities, and decrease in capital other than those arising from withdrawals of the owner/s. Some examples are: Cost of Sales, Salaries Expense, Rent Expense, Utilities Expense, Delivery Expense, and others. Full Tutorial

More on page 2: Summary of the concepts discussed about the accounting equation, double entry system, and the accounting cycle.

The Accounting Cycle: 9-Step Accounting Process

Fundamental Accounting Concepts: Short Quiz