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Key Accounting Principles Explained

The document discusses accounting principles and concepts. It defines accounting principles as the basic rules, concepts, conventions and procedures that represent accepted accounting practices. It identifies two main categories of accounting principles - concepts and conventions. The key concepts discussed are the separate entity concept, going concern concept, money measurement concept, cost concept, dual aspect concept, accounting period concept, matching concept, realization concept, and accrual concept. The key conventions discussed are conservatism, full disclosure, consistency, and materiality. The document provides details on each of these concepts and conventions.

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53 views11 pages

Key Accounting Principles Explained

The document discusses accounting principles and concepts. It defines accounting principles as the basic rules, concepts, conventions and procedures that represent accepted accounting practices. It identifies two main categories of accounting principles - concepts and conventions. The key concepts discussed are the separate entity concept, going concern concept, money measurement concept, cost concept, dual aspect concept, accounting period concept, matching concept, realization concept, and accrual concept. The key conventions discussed are conservatism, full disclosure, consistency, and materiality. The document provides details on each of these concepts and conventions.

Uploaded by

abin scria
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

GROUP 3

• Rules of action or conduct which are adopted by accountants universally while recording
accounting transactions . – Accounting Principles

• GAAP [Generally Accepted Accounting Principles]


It is a technical concept that describes the basic rules, concepts, conventions and
procedures that
represent accepted accounting practices at a particular time.
ACCOUNTING PRINCIPLES are divided into two:
1. CONCEPTS:
2. CONVENTIONS:
• Separate entity concept
• Convention of conservatism
• Going concern concept
• Convention of full disclosure
• Money measurement concept
• Convention of consistency
• Cost concept
• Convention of materiality
• Dual aspect concept
• Accounting period concept
• Matching concept
• Realisation concept
• Accrual concept
• Objectivity concept
ACCOUNTING CONCEPTS:

The term concepts includes those basic assumptions or conditions upon which the science of
accounting is based. The following are the important accounting concepts:

1. Separate Entity Concept:

In accounting, business is considered to be a separate entity from the proprietor(s).

2. Going concern concept

According to this concept, it is assumed that the business will continue for a fairly long time to
come.

3. Money measurement concept

According this conventions only monetary transactions are recorded.


4. Cost concept

This concept is closely related to going concern concept


• An asset is an ordinarily entered on the accounting record at the price paid to acquire it, and
• This cost is the basis for all subsequent accounting for the asset

5. Dual Aspect concept

This is a basic concept of accounting. According to this concept, every business transaction has dual
effect.

6.Accounting Period concept

According to this concept the life of the business is divided into appropriate segment or time
interval is called ‘accounting period’
7. Matching concept

According to this concept, when you record revenue, you should record all related expenses at the same time.

8. Realisation concept

Revenue is recognised to be made at the point when the property in goods passes the buyer and he becomes
legally liable to pay
Eg B places order with A for supply of certain goods.

9. Accrual concept

Requires accounting transactions to be recorded in the time period in which they occur, regardless of the time
period when the actual cash flows for the transaction are received.
10. Objectivity concept

Financial statements, accounting records, and financial information as a whole should be independent and free from bias
CONVENTIONS
1. Conventions of conservatism

• Convention by which, when two values of a transaction are available, the lower-value transaction is recorded.

• Recognize no profit but anticipate for all possible losses

• Eg Provision for bad debts, general reserve.

2. Convention of full disclosure

• Full disclosure should be made by the accountant at the time of recording.

• Help the user in proper interpretation of financial statements of the company.


3. Convention of consistency

• Once the company has decided to follow a method of accounting then it shall consistently follow the same
method throughout.

• Helps the management to analyze the financial statement of different periods and ensure that corrective
decisions are taken, if needed.

• Promote accuracy, enhance comparability, Improved decision making.

4. Convention of materiality

• As per the accounting convention of materiality, an item is material if it can influence the decision of users of
the financial statements.
• Related to significant importance of any event or item.
• Helps users to ignore irrelevant or immaterial items or events.
These accounting principles has made the accounting language more meaningful
Thank you !

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