accounting concepts

1. Accounting standards

2. Accounting is the art of recording , classifying
and summarizing in a significant manner, and
in terms of money , transactions and events
which are , in part at least , of financial
character and interpreting the results thereof.

3.  Nature and scope of accounting was explained
in 1961 by the American institute of certified
public accountants (AICPA) in the following
definition which is also known as traditional

4.  Identifying
 Measuring
 Recording
 Classifying
 Summarizing
 Significant
 Interpretation
 Communication

5.  While accounting is many thing to many
people, real nature of accounting is essentially
described as :
 An intellectual discipline
 A profession
 A social force
 A tool of social welfare
 An aid or help to resource

6. BOOK KEEPING
 The process of identifying or
recognizing the business
transactions
 Expression the value of
transaction in money terms
 Recording of business
transaction in books of
original entry and
 Classifying or grouping
business transactions into
proper heading and posting
them in the ledger
ACCOUNTING
 Accounting is concerned not
only with the recording of
business transactions but also
 Summarizing of classified
transaction in the form of
profit and loss account and
balance sheet
 Analyzing and interpreting
the business transactions
 Communicating the results to
the ultimate users of
accounting information.

7. BOOK KEEPING
 Book-keeping is the
primary or first stage of
maintaining the book of
account
 The main objectives the
book-keeping is to
maintain records of
business transactions a
systematic manner
ACCOUNTING
 Accounting is secondary or
second stage of maintaining
the book of account in fact
accounting begins where
book-keeping ends.
 The objectives of accounting
is to find out the profit or loss
and financial position of the
enterprise and communicate
the same to users of
accounting information

8.  Maintaining proper records of business transactions
 Ascertaining or knowing the profit or loss of the
business
 Ascertaining the sources of the item of revenue and
expenses
 Ascertaining of the financial position of the business
 Ascertaining the cash flow position
 Communicating the financial information of various
groups
 Meeting legal requirements
 Controlling the performance of the business
 Ascertaining the position of debtors and creditors
 Facilitating research in business operations

9.  Maintaining systematic records
 Communicating the financial results
 Meeting legal needs
 Protecting business assets
 Accounting assists the management in
the task
 Fixing responsibility

10.  Maintenance of records rather than memory
 Preparation of financial statements
 Comparison of result
 Assistance to management
 As legal evidence
 Helps in taxation matter
 Ascertainment of value of business
 Raising loans
 Control over assets or properties
 Prevention of errors and frauds
 Communication to external users

11.  No recording of non-monetary transactions
 No information about the present value of
business
 Use of estimates or personal judgement
 Window dressing
 Unrealistic accounting information
 Accounting information is not natural or
unbiased
 Lack of consistency
 Disclosure of only material items
 Historical information only

12.  Financial accounting
 Management accounting
 Cost accounting
 Tax accounting
 Social accounting
 Human resources accounting
 National accounting
 Green accounting
 Creative accounting
 Forensic accounting

13.  Cash basis of accounting : credit transactions
are not considered at all including adjustments
for outstanding expenses or accrued income
items

14.  This basis is simple to use and does not
require technical knowledge of accountancy
 There is no scope for estimation or personal
judgements because cash transactions are
recorded only when actual cash is received
or paid
 This basis is suitable for business firms
having most of the transactions in cash

15.  Cash basis does not give a true and fair view
of profit or loss
 There is no scope of matching principle
 There is enough possibility of manipulating
 As capital and revenue items are treated at
par there is no consistency in the profit or
loss figure of different accounting periods
 Cash basis of accounting is not recoganised
by the companies act

16.  Under accrual basis of accounting , only
revenue items are taken into account for
income determination and capital expenditure
are ignored. Income is recognized when it is
earned and not when the money is actually
received later on .

17.  It is based on all business transactions of the year in
respect of income and expense items and not simply
relating to cash transactions
 This basis of accounting can be used in all types of
business enterprises
 It is more suitable for the application of matching
principle
 It is more scientific and rational basis of accounting
 There is a consistency in the computation of profit or
loss of different years
 It is recognized by the companies act

18.  Primarily there are two systems of accounting which are used as a
basis for recording day – to – day business transactions in a
systematic manner they are :single entry system and double entry
system
 Single entry system: also known as accounts from incomplete
records this system ignores the two – fold or dual aspect of
recording the transactions
(a) Pure single entry, in which only personal accounts are
maintained with the result that no information is available in
respect of cash and bank balances, sales and purchases etc. In
view of its failure to provide even the basic information regarding
cash etc., this method exists only on paper and has no practical
application ;
(b) Simple single entry, in which only : (1)personal accounts and
(2)cash book are maintained
(c) Quasi single entry is a system in which (1)personal accounts (2)
cash book (3) some subsidiary books are maintained

19.  Double entry: under this system, all
transactions relating to persons , goods
services, cash or credit are recorded in a
scientific manner taking into consideration
their two –fold or double effects.
 Indian system : system of book keeping which
is followed throughout the country for a long
time

20.  Accounting principles are uniform set of rules and
guidelines for any accountant to record the
business transactions and prepare the financial
statements , namely : the income statement , the
balance sheet and the cash flow statement.
 Accounting principles must satisfy the following
conditions , namely :
(1) They must be real assumptions like money concept
or entity concept
(2) they must be simple and understandable
(3) they must be followed consistently
(4) they should be able to provide useful information
to the users.

21. (1) To ensure uniformity
(2) simple guidelines
(3) Not final statements
(4) The general acceptance of accountancy principles
depends upon how well they meet the three criteria
or conditions of (a) relevance ; (b) objectivity and (c)
feasibility.

22.  Accounting standards may be defined as written
policy documents issued by expert accounting
body or by government or its regulatory body
covering such aspects as recognition of events
, measurements , presentation and disclosure of
accounting transactions and events in the
financial statements , namely : balance sheet and
profit and loss account.
 Accounting standards may also be termed as
codified forms of generally accepted accounting
principles

23.  The accounting standards primarily deal with the following
issues :
(a) Recognition or identification of events and transactions in
the financial statements
(b) Measurements of these transactions and events in terms of
money
(c) Presentation of these transactions and events in the
financial statements in a manner that is meaningful and
understandable to the users of accounting information
(d) The disclosure requirements to unable the public in general
and creditors , owners and potential or future investors in
particular to know what is inside the financial statements .

24.  Accounting standards prescribe a model code or yardstick or
benchmark of accounting policies and practices for guidance
of the accountants
 Accounting standards eliminate or remove the effect of
several or various accounting policies and practices so that
financial statement of different firms become comparable
 Accounting standards provides the most suitable accounting
method to solve one or more accounting problems
 Accounting standards clearly communicate to the users of
the financial information the basis on which financial
statements have been prepared
 Accounting standards limit the scope of discretion by the
accountants in presenting financial information through
profit and loss account and balance sheet

25. CONCEPTS
 Concept are in the nature of
general statement like entity
concept etc and do not
provide solutions to specific
problems
 Concept may allow
alternative treatments for the
same items
 They are unwritten general
statements about the rules or
guidelines for recording
business transactions
 They do not have legal status
STANDARDS
 Accounting standards will aim at
specific solution to specific
issues such as inventory
valuation , revenue recognition
etc
 Accounting standards on
valuation of fixed assets and
inventory valuation may limit
the number of method of
valuation of these items
 They are written or codified
statements issued by accountant
specifying uniform rules
 They are legally recognized by
government

26.  We can classify the standards into following
categories:
(a) Policy standards which deals with simple
concepts and conventions
(b) Standards whish deal with the format of financial
statements as prescribed in companies
act, insurance companies act , banking companies
act and so on
(c) Standards which deals with the measurement of
financial events

27. (a)Easy intra-firm and inter-firm comparability
(b) Reliability and credibility
(c)True and fair view of financial position
(d) Improve the quality of financial reporting
(e) Reduction in alternative accounting practices
(f) Efficiency of management
(g)Value of accounting information
(h)Useful to accountants and auditors
(i) Reduction of manipulation and frauds
(j) Resolving conflict of financial interest

28.  AS 1 Disclosure of Accounting Policies
 AS 2 Valuation of Inventories
 AS 3 Cash Flow Statements
 AS 4 Contingencies and Events Occurring after the Balance Sheet Date
 AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in
 Accounting Policies
 AS 6 DepreciationAccounting
 AS 7 Construction Contracts (revised 2002)
 AS 8 Accounting for Research and Development (withdrawn pursua
the issuance of AS 26)
 AS 9 Revenue Recognition
 AS 10 Accounting for Fixed Assets
 AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003)
 AS 12 Accounting for Government Grants
 AS 13 Accounting for Investments
 AS 14 Accounting for Amalgamations
 AS 15 Accounting for Retirement Benefits in the Financial Statements of
 Employers

29.  AS 16 BorrowingCosts
 AS 17 Segment Reporting
 AS 18 Related Party Disclosures
 AS 19 Leases
 AS 20 Earnings Per Share
 AS 21 Consolidated Financial Statements
 AS 22 Accounting forTaxes on Income
 AS 23 Accounting for Investments in Associates in Consolidated financial
statements
 AS 24 DiscontinuingOperations
 AS 25 Interim Financial Reporting
 AS 26 IntangibleAssets
 AS 27 Financial Reporting of Interests in JointVentures
 AS 28 Impairment of Assets
 AS 29 Provisions,Contingent Liabilities and Contingent Assets
 AS-30 Financial instruments: Recognition and measurement and limited
revision to AS-2,AS-11,AS-21,AS-23,AS-26.AS-27,AS-28.
 AS-31 Financial instrument – presentation
 AS-32 Financial instrument – disclosure