ACCOUNTING

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ACCOUNTING

• ACCOUNTING PRINCIPLES

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ACCOUNTING PRINCIPLES
Accounting principles can be subdivided into two
categories         Accounting Concepts
and         Accounting Conventions.
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ACCOUNTING PRINCIPLES
        Accounting Concepts         Accounting
Conventions The term concept is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which accounting
is based. The term convention is used to
signify customs and traditions as a guide to the
presentation of accounting statements.
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ACCOUNTING PRINCIPLES

• Accounting Concepts
• Business Entity Concept
• Money Measurement Concept
• Cost Concept
• Going Concern Concept
• Dual Aspect Concept
• Realization Concept
• Accounting Period Concept

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ACCOUNTING PRINCIPLES

• Accounting Conventions
• Convention of Consistency
• Convention of Disclosure
• Convention of Conservation

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ACCOUNTING PRINCIPLES
Accounting Concepts The term concept is used
to connote accounting postulates, that is
necessary assumptions and conditions upon which
accounting is based.
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Business Entity Concept
Business is treated as a separate entity or unit
apart from its owner and others. All the
transactions of the business are recorded in the
books of business from the point of view of the
business as an entity and even the owner is
treated as a creditor to the extent of his/her
capital.
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Money Measurement Concept
In accounting, we record only those transactions
which are expressed in terms of money. In other
words, a fact which can not be expressed in
monetary terms, is not recorded in the books of
accounts.
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Accounting Period Concept
In accounting, life of the business is perpetual
but still it has to report the results of
activity undertaken in one year. So final
accounts are prepared for the accounting period
which is 12 months period and normally it is the
Financial Year ( 1st April to 31st March).
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Cost Concept
Transactions are entered in the books of accounts
at the amount actually involved. Suppose a
company purchases a car for Rs.1,50,000/- the
real value of which is Rs.2,00,000/-, the
purchase will be recorded as Rs.1,50,000/- and
not any more. This is one of the most important
concept and it prevents arbitrary values being
put on transactions.
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Going Concern Concept
It is persuaded that the business will exists for
a long time and transactions are recorded from
this point of view. The entity is assumed to
remain in operation sufficiently long to carry
out its objects and plans.
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Dual Aspect Concept
Each transaction has two aspects, that is, the
receiving benefit by one party and the giving
benefit by the other. This principle is the core
of accountancy.
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Dual Aspect Concept continue
For example, the proprietor of a business starts
his business with Cash Rs.1,00,000/-, Machinery
of Rs.50,000/- and Building of Rs.30,000/-, then
this fact is recorded at two places. That is
Assets account (Cash, Machinery Building) and
Capital accounts. The capital of the business is
equal to the assets of the business.
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Dual Aspect Concept continue
Thus, the dual aspect can be expressed as
under   Capital Liabilities Assets or Capital
Assets Liabilities
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Realization Concept
This concept emphasizes that profits should be
considered only when realized . Accounting should
take into consideration profits only when the
same have been realized.
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Matching Concept
Matching concept requires that expenses should be
matched to the revenues of the appropriate
accounting period. So we must determine the
revenue earned during a particular accounting
period and the expenses incurred to earn those
revenues.
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Accrual Concept
Accrual is concerned with expected future cash
receipts and payments Accounting attempts to
recognize non-cash events and circumstances as
they occur. Examples are purchase and sales of
goods on credit ,wages and salaries outstanding.
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Stable Monetary Unit Concept
This concept presumes that the purchasing power
of monetary unit ,say, rupee, remains the same
throughout , thus ignoring the effect of rising
or falling purchasing power of monetary unit due
to deflation or inflation.
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ACCOUNTING PRINCIPLES
Accounting Conventions The term convention is
used to signify customs and traditions as a guide
to the presentation of accounting statements.
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Convention of Consistency
In order to enable the management to draw
important conclusions regarding the working of
the company over a few years, it is essential
that accounting practices and methods remain
unchanged from one accounting period to another.
The comparison of one accounting period with that
of another is possible only when the convention
of consistency is followed.
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Convention of Disclosure
This principle implies that accounts must be
honestly prepared and all material information
must be disclosed therein. The contents of
Balance Sheet and Profit and Loss Account are
prescribed by law. These are designed to make
disclosure of all material facts compulsory.
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Convention of Conservation
Financial statements are always drawn up on
rather a conservative basis. That is, showing a
position better than what it is, not permitted.
It is also not proper to show a position worse
than what it is. In other words, secret reserves
are not permitted.
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Convention of Relevance
Financial statements are always drawn up on
rather a conservative basis. That is, showing a
position better than what it is, not permitted.
It is also not proper to show a position worse
than what it is. In other words, secret reserves
are not permitted.
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Convention of Objectivity
Financial statements are always drawn up on
rather a conservative basis. That is, showing a
position better than what it is, not permitted.
It is also not proper to show a position worse
than what it is. In other words, secret reserves
are not permitted.