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Substance over form concept

The concept substance over form means that the transactions recorded in the financial statements must reflect their economic substance rather than their legal form.

  • Transaction: A transaction is an instance of an event that could alter the financial status of a business entity. A transaction usually is a contract between a buyer and a seller which gives rise to an asset for one entity and/or liability for the other entity. Selling inventory, buying raw materials, indulging in legal agreements, getting a loan for a bank etc. are all examples of business transactions.

  • Asset: An asset is anything which is owned and controlled by the entity and will generate future economic