• The process of recording of
business transactions is called
• The action or process of keeping
financial accounts is called
4. GAAP (Generally Accepted
The rules that govern accounting are
called GAAP (Generally Accepted
Provides a fair financial image of the company.
Provides with different Information:
Balance sheet item classification.
Outstanding share measurements
5. • The common set of accounting
principles, standards and
• Combination of authoritative
standards (set by policy boards)
and simply, the commonly
6. Main Categories of GAAP
• Assets: An asset is an item of value
owned by a company.
• Liabilities: In
accounting, liabilities are obligations
of the company, to transfer something
of value to another party.
• Equity: Equity is the owner's value in
an asset or group of assets.
7. The GAAP principles are divided into
1. Accounting Concepts: Accounting
Concepts are basic assumptions or
conditions upon which science of
accounting is based.
2. Accounting Conventions: Accounting
Conventions include those customs and
traditions which are followed up by an
accountant while preparing a financial
8. Accounting Concepts
Accounting Concept Includes:
Separate Entity Concept
It is helpful in keeping the business
affairs strictly free from the effect of the
private affairs of the proprietor(s).
Amount invested by the proprietor is
shown as “ Liability”.
Amount paid for the personal expenses
of the proprietor are shown as drawings
from the capital of the proprietor.
9. Accounting Concepts
Money Measurement Concept
Only the transactions which can be
recorded in terms of money are
This is being used so as to provide a
common yardstick (i.e. money) for
10. Dual Aspect Concept
Every business transaction has a dual
affect i.e. it affects two accounts.
This is based on accounting equation:
Liabilities = Assets.
Owner’s equity + Outsider’s equity =
This equation can be explained as “for
every debit there is an equivalent
11. FOUR ACCOUNTING CONCEPTS
It is the basis for recording expenses and
includes two steps:
1. Identify all the expenses incurred during
the accounting period.
2. Measure the expenses and the match
the expenses against the revenues
Revenues – Cost = Net income or Profit.
12. Going Concern Concept
Business would continue to operate
indefinitely in the future. Business
will not cease doing business,
neither; it will sell its assets to pay
off its liabilities
14. Accounting Period Concept
Accounting period is the span of time, at
the end of which financial statements
are prepared to throw light on the results
of the operations at the end of a relevant
period and the financial position at the
end of a relevant period.
15. Realization Concept
The Revenue principle governs two things:
1. When to record revenue
2. Amount of revenue to record
To be recognized, revenue must be:
Earned: Goods are delivered or a service is
Realized: Cash or claim to cast (credit) is
received in exchange for goods and
16. TWO ACCOUNTING CONVENTIONS
Financial statements should be honestly
prepared and sufficiently, disclose
information which is of material interest
to proprietors, present and potential
creditors and investors
Only material or significant details
are to be recorded leaving the
insignificant or minute details. This
is done to prevent overburdening of