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CONCEPT OF ACCOUNTING
PRINCIPLES
AND
CONVENTIONS
Accounting can be defined as the process
of identifying, measuring, recording and
communicating the economic events of an
organization to the interested users of the
information.
RECORDING OF FINANCIAL TRANSACTIONS
ONLY.
RECORDING(CASH BOOK,SALES BOOK ETC.)
CLASSIFYING
SUMMARISING
RECORDING IN TERMS OF MONEY
INTERPRETATION OF THE RESULTS
Accounts topic principal
a. TO KEEP SYSTEMATIC RECORD OF BUSINESS
TRANSACTIONS.
b. TO CALCULATE PROFIT & LOSS
c. TO KNOW THE EXACT REASONS LEADING TOO NET
PROFIT OR NET LOSS.
d. TO ASCERTAIN THE FINANCIAL POSITION OF THE
BUSINESS.
e. TO ASCERTAIN THE PROGESS OF THE BUSINESS
FROM YEAR TO YEAR.
f. TO PREVENT & DETECT ERRORS & FRAUDS.
g. TO PROVIDE INFORMATION TO VARIOUS PARTIES.
 FINANCIAL ACCOUNTING
 COST ACCOUNTING
 MANAGEMENT ACCOUNTING
 TAX ACCOUNTING
 SOCIAL RESPONSIBILITY
Accounts topic principal
MANAGEMENT(TOP
MGT)
EMPLOYEES
DIRECTOR(CEO)
OWNER
LABOUR
DEBTORS
FINANCIAL
INSTITUTION
GOVT .
CUSTOMERS
SUPPLIERS, ETC.
EXTERNAL USERS
Accounting principles can be subdivided into
two categories
• Accounting Concepts; and
• Accounting Conventions.
Accounts topic principal
• Accounting Concepts
• Accounting Conventions
The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which
accounting is based. The term ‘convention’
is used to signify customs and traditions as
a guide to the presentation of accounting
statements.
Accounting Concepts
• Business Entity Concept
• Money Measurement Concept
• Cost Concept Or Historical Cost Concept
• Going Concern Concept
• Dual Aspect Concept
• Revenue Recognition (realisation) concept
• Matching Concept
• Accrual concept
• Accounting Period Concept
Accounting Conventions
• Convention of Consistency
• Convention of Disclosure
• Convention of Conservation
• Convention of Materiality
Business is treated as a separate entity or
unit apart from its owner and others. All the
transactions of the business are recorded in
the books of business from the point of view
of the business as an entity and even the
owner is treated as a creditor to the extent
of his/her capital.
In accounting, we record only those
transactions which are expressed in terms
of money. In other words, a fact which can
not be expressed in monetary terms, is not
recorded in the books of accounts.
Transactions are entered in the books of
accounts at the amount actually involved.
Suppose a company purchases a car for
Rs.1,50,000/- the real value of which is
Rs.2,00,000/-, the purchase will be recorded
as Rs.1,50,000/- and not any more. This is
one of the most important concept and it
prevents arbitrary values being put on
transactions.
It is persuaded that the business will exists
for a long time and transactions are
recorded from this point of view.
Each transaction has two aspects, that is,
the receiving benefit by one party and the
giving benefit by the other. This principle is
the core of accountancy.
Thus, the dual aspect can be expressed as
under
 
Capital + Liabilities = Assets
or
Capital = Assets – Liabilities
For example, the proprietor of a business
starts his business with Cash
Rs.1,00,000/-, Machinery of Rs.50,000/-
and Building of Rs.30,000/-, then this fact
is recorded at two places. That is Assets
account (Cash, Machinery & Building) and
Capital accounts. The capital of the
business is equal to the assets of the
business.
Strictly speaking, the net income can be measured
by comparing the assets of the business existing
at the time of its liquidation. But as the life of the
business is assumed to be infinite, the
measurement of income according to the above
concept is not possible. So a twelve month period
is normally adopted for this purpose. This time
interval is called accounting period.
It provide more appropriate information about the
performance of business enterprise as compared
to cash basis Accural concept implies equally to
revenues
And expenses.In accrual concept revenue is
recorded when sales are made or services are
rendered and it is immateria; whether cash is
Accounts topic principal
Accounting Conventions:
The term ‘convention’ is used to signify
customs and traditions as a guide to the
presentation of accounting statements.
In order to enable the management to draw
important conclusions regarding the working of the
company over a few years, it is essential that
accounting practices and methods remain
unchanged from one accounting period to another.
The comparison of one accounting period with that
of another is possible only when the convention of
consistency is followed.
This principle implies that accounts must be
honestly prepared and all material
information must be disclosed therein. The
contents of Balance Sheet and Profit and
Loss Account are prescribed by law. These
are designed to make disclosure of all
material facts compulsory.
Financial statements are always drawn up
on rather a conservative basis. That is,
showing a position better than what it is, not
permitted. It is also not proper to show a
position worse than what it is. In other
words, secret reserves are not permitted.
This convention is an exception to the convention of
full disclosure.according to this convention,items
having an insignificant effect or being irrelevent to
the user need not be disclosed.these unimportant
items are either leftout or merged with other
items,otherwise accounting statements will be
unnecessarily overburdened.
Accounts topic principal

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Accounts topic principal

  • 2. Accounting can be defined as the process of identifying, measuring, recording and communicating the economic events of an organization to the interested users of the information.
  • 3. RECORDING OF FINANCIAL TRANSACTIONS ONLY. RECORDING(CASH BOOK,SALES BOOK ETC.) CLASSIFYING SUMMARISING RECORDING IN TERMS OF MONEY INTERPRETATION OF THE RESULTS
  • 5. a. TO KEEP SYSTEMATIC RECORD OF BUSINESS TRANSACTIONS. b. TO CALCULATE PROFIT & LOSS c. TO KNOW THE EXACT REASONS LEADING TOO NET PROFIT OR NET LOSS. d. TO ASCERTAIN THE FINANCIAL POSITION OF THE BUSINESS. e. TO ASCERTAIN THE PROGESS OF THE BUSINESS FROM YEAR TO YEAR. f. TO PREVENT & DETECT ERRORS & FRAUDS. g. TO PROVIDE INFORMATION TO VARIOUS PARTIES.
  • 6.  FINANCIAL ACCOUNTING  COST ACCOUNTING  MANAGEMENT ACCOUNTING  TAX ACCOUNTING  SOCIAL RESPONSIBILITY
  • 9. Accounting principles can be subdivided into two categories • Accounting Concepts; and • Accounting Conventions.
  • 11. • Accounting Concepts • Accounting Conventions The term ‘concept’ is used to connote accounting postulates, that is necessary assumptions and conditions upon which accounting is based. The term ‘convention’ is used to signify customs and traditions as a guide to the presentation of accounting statements.
  • 12. Accounting Concepts • Business Entity Concept • Money Measurement Concept • Cost Concept Or Historical Cost Concept • Going Concern Concept • Dual Aspect Concept • Revenue Recognition (realisation) concept • Matching Concept • Accrual concept • Accounting Period Concept
  • 13. Accounting Conventions • Convention of Consistency • Convention of Disclosure • Convention of Conservation • Convention of Materiality
  • 14. Business is treated as a separate entity or unit apart from its owner and others. All the transactions of the business are recorded in the books of business from the point of view of the business as an entity and even the owner is treated as a creditor to the extent of his/her capital.
  • 15. In accounting, we record only those transactions which are expressed in terms of money. In other words, a fact which can not be expressed in monetary terms, is not recorded in the books of accounts.
  • 16. Transactions are entered in the books of accounts at the amount actually involved. Suppose a company purchases a car for Rs.1,50,000/- the real value of which is Rs.2,00,000/-, the purchase will be recorded as Rs.1,50,000/- and not any more. This is one of the most important concept and it prevents arbitrary values being put on transactions.
  • 17. It is persuaded that the business will exists for a long time and transactions are recorded from this point of view.
  • 18. Each transaction has two aspects, that is, the receiving benefit by one party and the giving benefit by the other. This principle is the core of accountancy.
  • 19. Thus, the dual aspect can be expressed as under   Capital + Liabilities = Assets or Capital = Assets – Liabilities
  • 20. For example, the proprietor of a business starts his business with Cash Rs.1,00,000/-, Machinery of Rs.50,000/- and Building of Rs.30,000/-, then this fact is recorded at two places. That is Assets account (Cash, Machinery & Building) and Capital accounts. The capital of the business is equal to the assets of the business.
  • 21. Strictly speaking, the net income can be measured by comparing the assets of the business existing at the time of its liquidation. But as the life of the business is assumed to be infinite, the measurement of income according to the above concept is not possible. So a twelve month period is normally adopted for this purpose. This time interval is called accounting period.
  • 22. It provide more appropriate information about the performance of business enterprise as compared to cash basis Accural concept implies equally to revenues And expenses.In accrual concept revenue is recorded when sales are made or services are rendered and it is immateria; whether cash is
  • 24. Accounting Conventions: The term ‘convention’ is used to signify customs and traditions as a guide to the presentation of accounting statements.
  • 25. In order to enable the management to draw important conclusions regarding the working of the company over a few years, it is essential that accounting practices and methods remain unchanged from one accounting period to another. The comparison of one accounting period with that of another is possible only when the convention of consistency is followed.
  • 26. This principle implies that accounts must be honestly prepared and all material information must be disclosed therein. The contents of Balance Sheet and Profit and Loss Account are prescribed by law. These are designed to make disclosure of all material facts compulsory.
  • 27. Financial statements are always drawn up on rather a conservative basis. That is, showing a position better than what it is, not permitted. It is also not proper to show a position worse than what it is. In other words, secret reserves are not permitted.
  • 28. This convention is an exception to the convention of full disclosure.according to this convention,items having an insignificant effect or being irrelevent to the user need not be disclosed.these unimportant items are either leftout or merged with other items,otherwise accounting statements will be unnecessarily overburdened.