Final answer:
The concept of 'substance over form' in accounting emphasizes capturing the economic reality of a transaction rather than its legal structure, ensuring that financial statements reflect the true financial position and performance of an entity.
Step-by-step explanation:
The concept of substance over form refers to the accounting principle that prioritizes the economic reality of transactions over their legal form. Instead of merely recording the legal aspects of a transaction, it focuses on capturing the underlying economic substance. For example, if a company were to lease an asset, substance over form would require examining whether the transaction is effectively a purchase with financing or a rental agreement, even if it is legally structured as a lease. This principle ensures that financial statements reflect the true financial position and performance of an entity.