chaithra acc

8/4/2019 chaithra acc

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AccountingConcepts

Submitted By

CHAITHRA.L


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Accounting Conceptsv

Business entity conceptvDual aspect concept

vMatching concept

vObjective evidence concept

vMoney measurement concept

vGoing concern concept

vCost concept

v Accrual concept

v Accounting period conceptvRealization concept


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1.Business Entity

ConceptvThe business and its owner(s) are two

separate existence entity

vAny private and personal incomes andexpenses of the owner(s) should notbe treated as the incomes and

expenses of the business


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Examples

vInsurance premiums for the ownershouse should be excluded from the

expense of the businessv

vThe owners property should not beincluded in the account of the business

vAny payments for the owners personalexpenses by the business will betreated as drawings and reduce theowners capital contribution in thebusiness


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2. DUAL ASPECT

CONCEPTEvery transaction recorded in books

affects at least two accounts.

If one is debited then the other one iscredited with same amount.

This system of recording is known as

DOUBLE ENTRY SYSTEM.ASSETS = LIABILITIES + CAPITAL


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3. MATCHING

CONCEPTAll the revenue of a particular period

will be matched with the cost of that

period for determining the net profitsof that period.

Accordingly, for matching costs withrevenue, first revenue should be

recognized & then costs incurred forgenerating that revenue should berecognized.


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Following points must beconsidered while matching

costs with revenue-:1.Outstanding expenses though not paid in

cash are shown in the P&L a/c.

2.Prepaid expenses are not shown in the P&La/c.

3.Closing stock should be carried over to thenext period as opening stock.

4. Income receivable should be added in therevenue & income received in advanceshould be deducted from revenue.


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4. OBJECTIVE EVIDENCE

CONCEPT

Accounting transactions should berecorded in an objective manner, free

from the personal bias of eithermanagement or the accountant whoprepares the accounts. It is possibleonly when each transaction issupported by verifiable documents &vouchers such as cash memos,invoices.


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5. Money Measurement

ConceptvAn Accounting record is made only of

information which that can be expressedin monetary terms.

vAll transactions of the business arerecorded in terms of money

vMarket conditions, technological changesand the efficiency of management wouldnot be disclosed in the accounts


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6.Going Concern

Conceptv

vThe business will continue inoperational existence for theforeseeable future

v

vFinancial statements should beprepared on a going concern basisunless management either intends toliquidate the enterprise


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ExamplesvPossible losses form the closure of

business will not be anticipated in theaccounts

vPrepayments, depreciation provisionsmay be carried forward in theexpectation of proper matching against

the revenues of future periodsv

vFixed assets are recorded at historicalcost


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7. COST CONCEPT

vAssets are recorded at their originalprice.

vThis cost serves the basis for further

accounting treatment of the asset.vAcquisition cost relates to the past i.e.

it is known as historical cost.vAssets should be shown on the balance

sheet at the cost of purchase instead ofcurrent value


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Example-

vThe cost of fixed assets is recorded atthe date of acquisition cost. Theacquisition cost includes all expendituremade to prepare the asset for itsintended use.

v

vIt included the invoice price of the assets,

freight charges, insurance or installationcosts


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8.ACCRUAL CONCEPT

In this concept revenue is recordedwhen sales are made or services arerendered & it is immaterial whether

cash is received or not.Same with the expenses i.e. they are

recorded in the accounting period in

which they assist in earning therevenues whether the cash is paid forthem or not.


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9. ACCOUNTING PERIOD

CONCEPT

Entire life of the firm is divided into timeintervals for ascertaining theprofits/losses are known asaccounting periods.

Accounting period is of two types-financial year(1st Apr to 31st March) &

calendar year(1st

Jan to 31st

Dec).


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.

RECOGNITION/REALISATION

CONCEPT

Revenue means the addition to thecapital as a result of business

operations.Revenue is realized on three basis-:

1.Basis of cash

2.Basis of sale3.Basis of production


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For taxation purposes financial

year is adopted as prescribed bythe Govt.

Companies having their shares

listed on stock exchange publishestheir quarterly results.


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To conclude: Accounting concepts will help

process the information effectively at

low cost.

It helps to obtain reports quickly.

It helps in proper planning and

decision making.


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Documents

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