ACCOUNTING CONCEPTS.pptx

According to AKTU SYLLABUS

1. ACCOUNTING CONCEPTS Presented By: Vikash Barnwal Asst. Professor Kashi Institute of technology

2. Accounting concepts define the assumptions on the basis of which financial statements of a business entity are prepared. Concepts are those basic assumptions and condition which form the basis upon which the accountancy has been laid. Business entity concept Money measurement concept Going concern concept Accounting period concept Accounting cost concept Dual aspect concept Matching concept Realisation concept Accrual concept

3. Business entity concept : Business entity concept is one of the accounting concepts that states that  business and the owner are two separate entities and therefore, should be considered separate from each other . Example : Suppose Mr. Birla started a business. He invested Rs 1, 00, 000. He purchased goods for Rs 50,000, furniture for Rs. 40,000, and plant and machinery for Rs. 10,000 and Rs 2000 remained in hand. These are the assets of the business and not of the business owner. According to the business entity concept, Rs.1,00,000 will be assumed by a business as capital i.e. a liability of the business towards the owner of the business.  Now suppose, he takes away Rs. 5000 cash or goods for the same worth for his domestic purposes. This withdrawal of cash/goods by the owner from the business is his private expense and not the business expense. It is termed as Drawings. 

4. Money measurement concept: It states that a business should only record an accounting transaction if it can be expressed in terms of money. This means that the focus of accounting transactions is on quantitative information, rather than on qualitative information . Going concern concept: This concept assumes that the business will continue to operate and will not stop the business activities in the foreseeable future. Due to this reason, the financial statements for a particular financial period are created as a part of a series and carry the balances to the next financial period. This assumes that the non-current assets of the organization will not be sold any time soon and it will meet its obligations . Accounting period concept : It states that all assets are recorded in the books of accounts at their purchase price, which includes cost of acquisition, transportation and installation and not at its market price. It means that fixed assets like building, plant and machinery, furniture, etc are recorded in the books of accounts at a price paid for them.

5. Accounting cost concept : The cost principle is an accounting principle that  records assets at their respective cash amounts at the time the asset was purchased or acquired . The amount of the asset that is recorded may not be increased for improvements in market value or inflation, nor can it be updated to reflect any depreciation . Dual aspect concept : The dual aspect concept states that  since every transaction has a dual effect, the accounting records must reflect the same to show the accurate movement of funds . For instance, a buyer pays cash in return for a purchased item while the seller gains cash for the sold item . Matching concept: Matching principle is especially important in the concept of accrual accounting. Matching principle states that business should match related revenues and expenses in the same period. They do this in order to link the costs of an asset or revenue to its benefits.

6. Realisation concept : The realization principle is a concept in accounting that states that  revenue should be recognized once it is earned . This is the point at which a business can reasonably expect that the customer will pay for the goods or services . Accrual concept: A financial accounting method in which revenues and expenses are recorded when a transaction occurs rather then when money is exchange .

7. Accounting conventions are certain guidelines for complicated and unclear business transactions. While standardizing the financial reporting process, these conventions consider comparison, relevance, full disclosure of transactions, and application in financial statements . Types of Convention Consistency: Conservatism: Materiality: Full Disclosure:

8. Consistency: Transactions & valuation method treated the same way from year to year or period to period user