Accounting concepts.pdf

Acc concepts

2. Accounting Concepts/Principles

3. •Accountingconceptarethefundamentalprinciplesand
guidelinesthatguidethepreparation&presentationof
financialstatementsandaccountingtransactions.
•Theterm‘concept’isusedtoconnoteaccounting
postulates,thatisnecessaryassumptionsand
conditionsuponwhichaccountingisbased.
•Thesearethetheoriesonhowandwhycertain
categoriesoftransactionsshouldbetreatedina
particularmanner.

4. Business Entity Concept

5. •The business and its owner(s) are two separate
entities

6. Hence…
The Books of Accounts are prepared from
the point of view of the business

7. Capital (Liability)
Drawings (Asset)

8. The Personal Transactions of the Owner are not
recorded.
For Example:
A Car purchased by the owner for personal use
is not Recorded in the Books of Account of the
Business.

9. Going Concern Concept

10. It is assumed that the entity is a going
concern, i.e., it will continue to operate for
an indefinitely long period in future and
transactions are recorded from this point of
view.

11. Money Measurement Concept

12. In accounting, a record is made
only of those transactions or
events which can be measured
and expressed in terms of
money.

13. Non monetary transactions are not recorded in
accounting.
Attitude
Experience
Innovativeness
Honesty
Team work
Passion
skill

15. Accounting Period Concept

16. Formeasuringthefinancialresultsofa
businessperiodically,theworkinglifeof
anundertakingissplitintoconvenient
shortperiodscalledaccountingperiod.

19. Cost Concept

20. Anassetacquiredbyaconcernisrecorded
inthebooksofaccountsathistoricalcost
(i.e.,atthepriceactuallypaidforacquiring
theasset).Themarketpriceoftheassetis
ignored.

21. Historical
Cost of
Market
Value of
Rs. 30,000 Rs. 30,000
Rs. 30,000 Rs. 10,000
2019 2020

22. Dual -Aspect
Concept

23. For Every Debit, there is
a Credit
Every transaction should
have a two-sided effect to
the extent of same amount

24. •Cash Account Rs. 10,000Debit
•Sales Account Rs. 10,000Credit
For Example:
Cash Sales Rs. 10,000

25. •Purchases Account Rs. 20,000Debit
•Ram’s Account Rs. 18,000
•Discount Recd. Account 2,000
Credit
For Example:
Purchased From Ram goods worth Rs. 20,000
and discount received Rs. 2,000.

26. This Concept has resulted in
THE
ACCOUNTING
EQUATION

28. Realization
Concept

29. Profitisearnedwhengoods
orservicesareprovided
/transferredtocustomers.
Thusitisincorrecttorecord
profitwhen orderis
received,orwhenthe
customerpaysforthe
goods.

30. Matching
Concept

31. The matching principle ensures that
revenues and all their associated
expenses are recorded in the same
accounting period.
The matching principle is the basis on
which the accrual accounting methodof
book-keeping is built.

32. For Example
Salary paid in 2017-18 relating
to 2016-17
SuchsalaryistreatedasExpenditurefor
2016-17underOutstandingSalaries
Account,notfortheyear2017-18

33. Accounting
Conventions

34. AccountingConventionsarethe
common practiceswhichare
universallyfollowedinrecording
and presentingaccounting
informationofbusiness.Ithelpsin
comparingaccountingdataof
differentbusinessorofsameunits
fordifferentperiods.

35. Materiality

36. Only those transactions,
important facts and items
are shown which are
useful and material for
the business. The firm
need not record
immaterial and
insignificant items.
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37. Full
Disclosure

38. Financial Statements
and their notes
should present all
information that is
relevant and
material to the
user’s understanding
of the statements.

41. Conservatism

42. Anticipate No Profitsbut
Provide for all Losses
Accountant should
always be on side of
safety.

43. For Example
•Making Provision for Bad and
Doubtful Debts
•Showing Depreciation on Fixed
Assets, but not appreciation
•Stock valuation sticks to rule of the
lower of cost and net realizable value

44. Consistency
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45. The accounting practices and
methods should remain consistent
from one accounting period to
another.
Whatever accounting practice is
followed by the business enterprise,
should be followed on a consistent
basis from year to year.

47. For Example
2015-16
•Straight
Line
Method
2016-17
•Written
Down
Value
Method
2017-18
•Units of
Measure
Method
Year
Method of
Depreciation
followed

48. THANK YOU
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