Accounting concept and convention detailed Presentation

1. ACCOUNTING CONCEPT
AND
ACCOUNTING
CONVENTION
1
Presentation Prepared by-:
Poojan Mantri

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Topic Name Page No.
Accounting 4
ACCOUNTING CONCEPTS & CONVENTIONS 5
ACCOUNTING CONCEPTS 6
BUSINESS ENTITY 7
SEPARATE CONCEPTS 8
Money Measurements Concepts 9
ACCOUNTING PERIOD & COST 11
GOING CONCERN CONCEPT 12
DUAL ASPECT CONCEPT 13
REALIZATION CONCEPT 14
MATCHING CONCEPT 15
ACCOUNTING CONVENTIONS 17
DIVISIONS OF ACCOUNTING CONVENTIONS 18
Conclusion 19
INDEX

3. What is a Accounting…?
• Accounting is the process of recording financial transactions
pertaining to a business.
• The accounting process includes summarizing, analysing, and
reporting these transactions to oversight agencies, regulators, and
tax collection entities.
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4. ACCOUNTING CONCEPTS
&
CONVENTIONS
• Accounting Concepts have been established by professional
organization and are standard principles that must be followed
when preparing financial accounts.
• Accounting Conventions are generally accepted practices that
can change and are updated over time, depending upon the
requirement in financial reporting.
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5. ACCOUNTING CONCEPTS
1. Business Entity
2. Money Measurement
3. Accounting Period
4. Accounting Cost
5. Going Concern
6. Dual Aspect
7. Realization
8. Matching
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6. BUSINESS ENTITY
• A business entity is an organization that formed to conduct
business. The type of business entity formed determines how a
business is taxed and its exposure to liability.
• Business entities refer to the type or structure of a business, not
what it does. How it's structured affects how taxes are paid and
liabilities are determined. Business entities are usually created at
the state level, often by filing documents with a state agency such
as the Secretary of State.
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7. SEPARATE CONCEPTS
• The separate entity concept states that we should always
separately record the transactions of a business and its owners.
• An owner cannot remove funds from a business without recording it
as either a loan, compensation, or an equity distribution.
Otherwise, the owner may buy something (such as real estate) and
leave it on the books of the business, when in fact the owner is
treating it as a personal possession.
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8. The Money Measurements Concepts
• The Money Measurements Concepts defines that a business should only record
an accounting transaction if it can be expressed in terms of money.
• Means:- Focus of Accounting Transactions is on Quantitative Information
rather than on Qualitative Information.
large number of items are never reflected in company's record.
means they never appear in its financial statement
All of the foregoing factors are indirectly reflected in the financial results of a
business, as they have an impact on either revenues, expenses, assets, or
liabilities 8

9. Examples of items that cannot be recorded as
accounting transactions because they cannot
be expressed in terms of money include:
Employee skill level
Employee working conditions
Expected resale value of a patent
Value of an in-house brand
Product durability
Money Measurements Concepts
Example-:
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10. ACCOUNTING PERIOD
&
ACCOUNTING COST
• According to this concept all the transaction are recorded in the
books of account on the assumption that profits on these
transactions are to be ascertainted for the specified period.
• It helps you to calculation of profit, financial position, and tax
computation, etc.
• ACCOUNTING COST -:It stats 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. 10

11. GOING CONCERN
CONCEPT
• According to this concept, it is
assumed that business is
established and will continue for a
fairly long time in future.
• This is the reason why while
valuing assets of firm current resale
value is not taken into account
instead depreciation is charge on
basis of their expected life.
• As an example, many dot-coms are
no longer going concern companies
after the tech bust in the late 1990s. 11

12. DUAL ASPECT CONCEPT
• Dual aspect is the foundation or basic principle of accounting.
• The dual aspect concept states that every business transaction required recordation in two
different account.
• This concept is the basis of double entry Accounting frameworks in order to produce reliable
financial statement.
• EXAMPLE-: Purchase of machinery in 50000 rupees there are expect in this transaction are
first aspect incoming machinery and second aspect outflow of cash.
The value of the Asset owned by the concern is equal to the claims on the Asset.
[ASSETS =LIABILITES+CAPITAL]
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13. REALIZATION CONCEPT
• The realization concept is that the revenue is recognized and recorded in the
period in which they are realized; similarly to accrual basis accounting. In similar
term, we realize as revenues when we deliver the agreed product with customers
or the services have been rendered to them.
• The realization concept derives from the recognition revenue principle. In
accounting, we recognize the revenue from sale of goods or provision of services
when such goods are delivered or the services are rendered to customers. In this
case, upon the delivery of goods or services, the revenues both from the
provision of goods or services is said to be realized.
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14. MATCHING CONCEPT
• Matching concept refers to the concept in accountancy which
states that the related expenses of the organization should be
booked in the same period when the revenue earned by incurring
such expenses is recorded.
• The purpose of such matching principle is to avoid misstatement of
earnings of any accounting period.
• There Are Two Components Of Matching Principle…
1. Period Cost :- The costs that are not directly related to the specific product.
2. Product Cost :- The costs that are directly associated with the product.
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15. EXAMPLE
A salesperson gets a 3%
commission on the sales he
transported and recorded in March.
His employer pays him the
commission of Rs 3,000 in April.
His employer needs to document
the commission expense in March
when preparing the trial balance.
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16. • It refers to common practices universally which are followed in Recording and
presenting Accounting information of business.
• Accounting convention is the set of practices discussed by the accounting bodies
before preparing final accounts.
• It has four divisions as:-
1. Consistency
2. Materiality
3. Conservatism
4. Full Disclosure
ACCOUNTING CONVENTIONS
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17. 1.Consistency-Once a particular method is selected by the business
while reporting process, it should be followed consistently in ensuing
years.
2.Materiality-It includes the impact of event or item and its relevance in
financial statements.
3.Conservatism-The accountant has to follow the principle of “playing
safe” while preparing financial statements, considering all possible
scenarios of loss while recording transactions..
4.Full Disclosure-Relevant and important information regarding the
financial status of the company must be revealed in financial statements
even after the application of the accounting convention.
DIVISIONS OF ACCOUNTING
CONVENTIONS
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Conclusion…
• Accounting concepts can help you make better predictions
about your company's future based on past trends in sales and
costs.
• Accounting conventions are important because they ensure
that multiple different companies record transactions in the
same way.

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