Accounting Concepts and its importance.pptx

Accounting concepts are the fundamental rules, assumptions, and ideas that provide a standardized framework for recording and reporting financial transactions. They ensure that financial statements are consistent, reliable, and transparent, allowing users to make informed decisions. These principles are the foundation of Generally Accepted Accounting Principles (GAAP) and other global accounting standards.

1. ACCOUNTING CONCEPTS Presented by : Dr. R. Kavithamani Assistant Professor PG and Research Department of International Business

2. Introduction Accounting concepts are the basic rules and assumptions that form the foundation of accounting . They ensure uniformity, consistency and reliability of financial statements .

3. Importance of Accounting Concepts Provide a framework for recording and reporting transactions. Ensure comparability between periods and firms. Help maintain transparency and accuracy. Facilitate proper decision-making.

4. Major Accounting Concepts Business Entity Concept Money Measurement Concept Going Concern Concept Accounting Period Concept Cost Concept Dual Aspect Concept Matching Concept Realisation Concept Accrual Concept

5. Business Entity Concept The business is treated as separate from the owner. Personal transactions of owners are not mixed with business transactions. Example: Owner’s personal expenses are not recorded in business accounts.

6. Money Measurement Concept Only those transactions that can be measured in money are recorded . Example: Employee skill or morale is not recorded though valuable.

7. Going Concern Concept Assumes that the business will continue for the foreseeable future . Assets are valued on the basis of their continuing use, not liquidation value.

8. Accounting Period Concept Financial results are reported for a specific period (usually one year ). Helps in comparing results over time

9. Cost Concept Assets are recorded at their original purchase price, not market value . Ensures objectivity and consistency in reporting.

10. Dual Aspect Concept Every transaction has two aspects : Debit and Credit . This forms the basis of the Double Entry System. Example: When cash is received, Cash (asset) increases, and Capital (liability) increases.

11. Matching Concept Expenses must be matched with the revenues they help to earn . Ensures correct profit determination.

12. Realisation Concept Revenue is recognized only when it is earned, not when cash is received . Example: Goods sold on credit are treated as income when sale occurs.

13. Accrual Concept Income and expenses are recorded when they are earned or incurred, not when cash is exchanged.

14. Accounting concepts form the backbone of financial accounting . They ensure accuracy, consistency, and transparency in financial statements. Conclusion