Account

PRESENTATION
ON
accounting principles
Meaning of Accounting :
Accounting is the language of the business. The basic
Function of a language is to serve as a means of
Communication. Accounting also serves this function. It
is the art of recording, classifying, summarizing,
analyzing, interpreting & communicating.
Accounting Principles:
It maybe defined as those rules of action adopted by the
accountants universally while recording accounting
transaction. The rules & guidelines that companies must
follow when reporting financial data. It is divided into two parts :
 Accounting Concepts
 Accounting Convention
Accounting Concepts :
The term Concepts includes those basis assumption or
conditions upon which the science of accounting is based.
The following are the important accounting concepts:
 Separate entity concept
 Going concern concept
 Money measurement concept
 Cost concept
 Dual aspect concept
 Realisation concept
Separate Entity Concept:
In accounting business is considered to be a separate
entity from the proprietor. It may appear to be ludicrous
that one person can sell goods to himself but this
concept is extremely helpful in keeping business affairs
strictly free from the effect of private affairs of the
proprietor.
Going Concern Concept:
According to this concept it is assumed that the business
will be continue for a fairly long time to come . There is neither
the intention nor the necessity to liquidate the particular business
venture in the foreseeable future. The accountant while valuing
the assets does not take into a/c forced sales value of assets .
Moreover he charges depreciation on fixed assets on the basis of
their expected lives rather than on their market value.
Money Measurement Concept:
Accounting records only monetary transactions. Like a business
has got a team of dedicated and trusted employees , it is
definitely
an asset to a business but since their money measurement is not
possible , they are not shown in the books of business.
Cost Concept:
 an asset is ordinarily entered in the accounting
records at the price paid to acquire it
 this cost is the basis for all subsequent accounting for the
assets.
The cost concept does not mean that the asset will
always be shown at cost. It has also been stated above that cost
become the basis for all future accounting for the asset. It
means that asset is recorded at cost at the time of its purchase,
but it may systematically be reduced in its value by charging
depreciation.
Dual Aspect Concept:
Every business transaction has a dual effect. For example
A starts a business with a capital of Rs 10,000 , there are two
aspects of the transaction. One hand the business has asset
of Rs 10,000 while on the hand the business has to pay to
the proprietor a sum of Rs 10,000 which is taken as
proprietors capital. This expression can be shown in the
form of :
Capital(Equities) = Cash (Assets)
10,000 = 10,000
Accounting Period Concept:
The life of the business is divided into appropriate segments for
studying the results shown by the business after each segment.
This is because though the life of the business is considered to be
indefinite , the measurement of income & studying the financial
position of the business after a very long period would not be
helpful in taking proper corrective steps at the appropriate time .
At the end of the accounting period an Income Statement & a
Balance Sheet are prepared.
Realization Concept:
In this concept revenue is recognised when a sale is
made. Sale is considered to be made at the point when
the property in goods passes to the buyer & he becomes
legally liable to pay.
Accounting Conventions
Accounting conventions are standards, customs and guidelines
regarding the application of accounting rules.
The following are the important accounting conventions:
 convention of Conservatism
 convention of Materiality
 convention of Consistency
 convention of Full discloser
Convention of Conservatism
Accounting, in some cases, involves a degree of estimation. It
is generally accepted that when trying to predict the future, it is
better to err on the safe side. There is a tendency to allow for
all possible losses and to recognize gains if reasonably certain
that they will occur. Revenues and profits are not anticipated.
Only realized profits with reasonable certainty are recognized
in the profit and loss a/c.
Convention of Materiality
The convention of materiality states that, to make financial
statements meaningful, only material fact i.e. important and
relevant information should be supplied to the users of
accounting information.
Convention Of Consistency
The convention of consistency means that same accounting
principles should be used for preparing financial statements
year after year. A meaningful conclusion can be drawn from
financial statements of the same enterprise when there is
comparison between them over a period of time.
Convention Of Full disclosure
concerning financial statements should be fully disclosed. Full
disclosure means that there should be full, fair and adequate
disclosure of accounting information. detailed presentation of
information. Thus, the convention of full disclosure suggests
that every financial statement should fully disclose all relevant
information. The business provides financial information to all
interested parties like investors, lenders, creditors, shareholders
etc. The shareholder would like to know profitability of the
firm while the creditor would like to know the solvency of the
business.
THANK YOU

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