accounting principles day 1 for accounts.pptx

accounting prinicples for accounting

1. Generally Accepted Accounting Principles Principles of Accounting

2. Generally Accepted Accounting Principles (GAAP) Generally Accepted Accounting Principles (GAAP) are basic accounting principles and guidelines which provide the framework for more detailed and comprehensive accounting rules, standards and other industry-specific accounting practices.  Thus GAAP encompasses: Basic accounting principles/guidelines Accounting Standards usually issued by the premier accounting body of the country Industry-specific accounting practices to cover unusual scenarios

3. In India, financial statements are prepared on the basis of  accounting standards  issued by the  Institute of Chartered Accountants of India  (ICAI) and the law laid down in the respective applicable acts (for example, Schedule III to Companies Act, 2013 should be compulsorily followed by all companies). The ICAI also releases guidance notes from time to time on various topics to help in the accounting process and provide clarity. While the basic accounting principles may not directly form part of the accounting standards and the related laws, they are assumed and expected to be universally followed.

4. Entities preparing first financial statements in compliance with Indian GAAP are required to comply with all accounting standards. There is no specific guidance when Indian GAAP does not cover a particular issue. There is no requirement to make an explicit and unreserved statement of compliance with Indian GAAP in the financial statements.

5. Accounting Concepts and Conventions Accounting Concepts: In India, there are several rules which need to be followed while walking or driving on the road as it enables the smooth flow of traffic.  Similarly, there are accounting rules that an accountant should follow while recording business transactions or recording accounts . They may be termed as accounting concepts. Hence, it can be said that:  “ The term accounting concepts refer to basic rules, assumptions, and principles which act as a primary  standard for recording business transactions and maintaining books of accounts”.  

6. Accounting Concepts and Conventions What are the Objectives of the Accounting Concept? The primary aim of accounting is to maintain uniformity and regularity in the preparation of accounting  statements. Accounting concepts act as an underlying principle that helps accountants in the preparation and maintenance of business records. It aims to understand the business rules and regulations  that are required to be followed by all types of business entities, and hence simplifying the detailed  and comparable financial information.  “The term accounting concepts refer to basic rules, assumptions, and principles which act as a primary  standard for recording business transactions and maintaining books of accounts”.  

7. ACCOUNTING CONCEPTS Business Entity Concept Going Concern Concept Dual Aspect Concept Cost Concept Money Measurement Concept Accounting Period Concept Realisation concept Matching Concept

8. ACCOUNTING CONCEPTS Business Entity Concept: According to this concept; Business and the owner are two separate entities and therefore, should be considered separate from each other. The financial transactions pertaining to the business entity should be recorded separately from the business owners transactions. If the transactions are not recorded in a mixed manner (involving both business and business owners in one statement) it will make the accounting information less usable.

9. ACCOUNTING CONCEPTS Going Concern Concept: Business c oncern will continue for an indefinite period. By presuming that the firm will continue its activities En t e r pri s e wil l n o t c eas e d o i n g busin e s s ; i t wi l l n ot se l l off i t s assets nor look for liquidation.

10. ACCOUNTING CONCEPTS Dual Aspect Concept: Under this concept for every debit, there is a credit. If something is given, someone will receive it. Briefly the dual aspect concept can be expressed as under: Assets = Liabilities + Equity

11. ACCOUNTING CONCEPTS Cost Concept: Fixed assets are recorded at cost price and are systematically reduced by the process called depreciation. These assets will disappear from balance sheet at the end of their economic life when they have been fully depreciated and sold as scrap.

12. ACCOUNTING CONCEPTS Money Measurement Concept: Only those transactions are recorded which can be expressed in monetary terms. For Example: an efficient dedicated manager is definitely an asset to the business, but since the monetary measurement is not possible so it is not shown in books.

13. ACCOUNTING CONCEPTS Accounting Period Concept: It i s n ece s sary t o k n ow a t fr e quen t int ervals “h o w th i ng s are going”. T welv e m o nt h pe r io d i s usu ally adopt ed for t h i s p urp o s e . T h is time period is called Accounting Period.

14. ACCOUNTING CONCEPTS Realisation Concept: Revenue is considered earned on the day Transfer goods to customer in exchange of valuable consideration This i s o f great im p o rtance in st o p pi n g b usi n es s f r o m inflat i ng their profit The accountant usually use dates

15. ACCOUNTING CONCEPTS Matching Concept: P rofit i s m ost im portant fac t or for t h e pro p r i et o r t o ke e p the business activities Revenue and their related expense in the same accounting period Purpose of matching concept is to ovoid misstating earning for a period

16. ACCOUNTING CONVENTIONS Convention of Consistency Convention of Full Disclosure Convention of Conservatism Convention of Materiality

17. ACCOUNTING CONVENTIONS Convention of Consistency: Accounting method and policies remain same from one period to another Circumstance changes become necessary so the change should be stated clearly

18. ACCOUNTING CONVENTIONS pre s en t a ll notes should materia l t o th e u s ers Convention of Full Disclosure: Financial statements and their inf o rmati o n tha t i s re l e v ant and understanding of the statement.

19. ACCOUNTING CONVENTIONS Convention of Conservatism: Losses are recorded when they are expected to occur Gains are only recognized once they are certain to happen (i.e. they have earned) This is done to: Assets and revenue are not overstated liabilities and expenses are not understated

20. ACCOUNTING CONVENTIONS Convention of Conservatism: Example applying Conservatism Losses A business owns inventory that was bought for $12000. It has gone down in value and is now worth just $8000.

21. ACCOUNTING CONVENTIONS Convention of Conservatism: Example applying Conservatism Gains A business owns a building that originally cost Rs 5 00,000. But growth in the property market means the building is now valued at Rs 60 , 0, 000 if were to be sold.

22. ACCOUNTING CONVENTIONS Convention of Materiality: Only th o s e tr a n s act i o n s , impor t an t fac t s an d item s ar e s h o w n which are useful and material for the business. The firm need not record immaterial and insignificant Items EXAMPLE Company XYZ Ltd. Bought 6 months supplies of stationery worth Rs 600. This amount is so small or immaterial, it can be expensed off in a next month instead of expensing it in the next 6 th month.

23. ANY QUESTIONS

24. THANK YOU! SANTHI PRIYA, SAO