accountingtheory
TRANSCRIPT
-BY RUTUJA. K NITEEN. P RAJAT.i KUSHAL.M R.No. 257 R.No. 305 R.No. 296 R.No. 448 B.COM 2nd SEM
CONCEPTS CONVENTIONS
ACCOUNTING PRINCIPLES
CONCEPTSCONCEPTS
The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which accounting
is based.
RUTUJA
BUSINESS ENTITY CONCEPT
The business and its owner(s) are two separate
existence entity. Any private and personal incomes and
expenses of the owner(s) should not be treated as the
incomes and expenses of the business.
BUSINESS OWNER / INDIVIDUAL
NITIN
GOING CONCEPT
It is assumed that the firm is a going concern
and its business will continue for a long period (indefinite
time). As per this concept, fixed assets are recorded at their
original cost & depreciation is charged on these assets.
FIRMFIRMTIME PERIOD 1 2 3 4 5 6 7 8 and so on…….
RAJAT
MONEY MEASUREMENT CONCEPT
An Accounting record is made only of Information
which that can be expressed in monetary terms. All
transactions of the business are recorded in terms of
money.
RUTUJA
COST CONCEPT
Assets should be shown on the balance sheet
at the cost of purchase instead of current value .The
cost of fixed assets is recorded at the date of
acquisition cost.
time passage
ASSET
CURRENT PRICERs 7000
*And firm is going concern
NITIN
PURCHASED AT Rs 5000
Queries ? Any
RAJAT
Mr. Lobo owns XYZ Co. He draws a cheque from his
S/B a/c and purchases a bike to fulfill his son’s want /
need. Is his transaction recorded in the firms book ?
NONO BUSINESS ENTITY CONCEPT
BUSINESS ENTITY CONCEPTAs per
Business and individual are two separate entity.
Here fulfilling his son’s need is his personal concern.
RUTUJA
It is generally assumed that the business will not
liquidate in foreseeable future, as per which concept ?
GOING CONCEPTGOING CONCEPT
As it is assumed that business will run for undefined period.
NITIN
Are Qualitative transactions recorded in accounts ? For
ex: knowledge, stress level etc
NONOMONEY
MEASUREMENT CONCEPT
MONEY MEASUREMENT
CONCEPTAs per
As this concept says record only monetary
transactions.
Here Qualitative things cannot be determined in
monetary terms.
RAJAT
A machine was purchased (asset) on 1.1.2012 for Rs
3Lakh (including expenses such as loading + installation).
The market value of the machine on 1.3.2012 was
estimated at Rs 3.5Lakh . While finalizing the account the
machine was recorded at Rs 3.5Lakh in the books. Is
the recorded transaction correct?
Assets should be valued at the price paid to
acquire them.
Here acquired value is 3lakh , and hence it should
be recorded.
COST CONCEPTCOST CONCEPT Violation of NONO
DUAL ASPECT CONCEPT
Every transaction recorded in books affects at
least two accounts. If one is debited then the other
one is credited with same amount. This system of
recording is known as “DOUBLE ENTRY SYSTEM”.
CCRR
A/c A A/c B
RUTUJA
ACCOUNTING PERIOD CONCEPT
Monitoring the performance of the organization
periodically i.e.
Entire life of the firm is divided into time intervals for
ascertaining the profits / losses are known as
accounting periods.
Accounting period is of two types:
NITIN
MATCHING CONCEPT
The main object of running a business is to
earn profit. Thus all the revenue of a particular period
will be matched with the cost of that period.
Accordingly, for matching costs with revenue, first
revenue should be recognized & then costs incurred
should be recognized.
Advertisement cost 400L
Advertisement cost 400L
100L100L
100L100L
100L100L
100L100L
Revenue is earned for 4
years
Revenue is earned for 4
years
Cost is divided and shown in B/S
for 4 years
Cost is divided and shown in B/S
for 4 years
1st year
3rd year
4th year
2nd year
RAJAT
REALISATION CONCEPT
This concept deals with the problem,
when the revenue should be realized?
Revenue is realized on three basis-:
RUTUJA
ACCRUAL CONCEPT
In this concept revenue is recorded when sales are
made or services are rendered & it is immaterial
whether cash is received or not. In the same way
expenses are recorded in the accounting period in
which they assist in earning the revenues whether the
cash is paid for them or not.
NITIN
OBJECTIVE CONCEPT
Accounting transactions should be recorded in an
objective manner, free from the personal bias of either
management or the accountant who prepares the
accounts. It is possible only when each transaction is
supported by verifiable documents & vouchers such as
cash memos, invoices.
RAJAT
RUTUJA
Which concept givens us accounting equation?
DUAL ASPECT CONCEPTDUAL ASPECT CONCEPT
RAJAT
Economic life of an enterprise is split into the periodic intervals as per -
1st year 2nd year 3rd year 4th year 5th year 6th year
PERIODICITY CONCEPTPERIODICITY CONCEPT
NITIN
A worker of ABC.ltd earns Rs1000 every month. But he
was paid Rs 13,000 for 12 months. How is the transaction
recorded?
Salary a/c DR Rs12,000 ----
Pre-paid salary a/c DR Rs 1,000 ----
To cash/bank a/c ---- Rs13,000
Current year expenses
Next year expenses
Expenses should be recognized when they are incurred, and
not when they are paid.
Here Rs12,000 should be recorded as current year expenses .
But Rs1,000 is paid in adv, so it remains outstanding as it
would incur in next year.
RUTUJA
According to which concept, the accounting
data & accounting information should be
verifiable and free from personal bias?
OBJECTIVE CONCEPTOBJECTIVE CONCEPT
Eg: In the case of fixed assets, the amount
can be verified by purchase bill.
CONVENTIONS
The term ‘convention’ is used to signify
customs and traditions as a guide to the
presentation of accounting statements.
NITIN
CONSERVERTISM / PRUDENCE
All anticipated losses should be recorded but all
anticipated gains should be ignored. Provisions are made
for all losses even though the amount cannot be
determined with certainty.
ANTICIPATED LOSSES
ANTICIPATED LOSSES
ANTICIPATED GAINS
ANTICIPATED GAINS
RAJAT
FULL DISCLOSURE
Information related to the economic affairs of the
enterprise should be completely disclosed which are of
material interest to the users such as Proforma , contents
of balance sheet and P&L a/c prescribed under the
Companies Act 1956.
RUTUJA
CONSISTENCY
Accounting method should remain consistent year by
year. This facilitates comparison in both directions i.e. intra
firm & inter firm. This does not mean that a firm cannot
change the accounting methods according to the changed
circumstances of the business.
VALUATION OF STOCK
DEPRECIATION
1st year 2nd year 3rd year
1st year 2nd year 3rd year
NITIN
MATERIALITY
An item should be regarded as material if there is
reason to believe that knowledge of it would influence
decision of informed investor. It is an exception to the
convention of full disclosure. Items having an
insignificant effect to the user need not to be
disclosed.
RAJAT
RUTUJA
A business man purchases goods(stock) costing Rs
8lac. He sold goods costing worth Rs 6lac. The market
value of the remaining stock was Rs 60,000. During the
accounting year end cl.stock was recorded at cost price. Is
the recorded transaction right?
NONO CONSERVERTISM / PRUDENCE
CONSERVERTISM / PRUDENCEAs per
All anticipated losses are to be recorded.
Here cost price of cl.stock is Rs2lac, but as per the
market value there is a loss of Rs1.4lac. And
thus it should be recorded.
NITIN
From past years Mr.Rustum & Co used to record
their closing stock (inventories) under FIFO method. Due
to current deflation condition, to maintain their same
profits they switched to LIFO method. This leads to
violation which concept?
CONSISTENCY CONVENTIONCONSISTENCY CONVENTION
Change in the method should be done
only if it is required by statute (ICAI) and if
the result is vague /not clear presentation
of financial statement.
RAJAT
The cost of small calculator is accounted as an
expense and not shown as asset in the financial
statement of a business entity due to-
MATERIALITY CONVENTIONMATERIALITY CONVENTIONAs per
As the calculator is immaterial compare to
other costly assets.
REFERENCE :Ms. SUCHETA ONKARI
TEXTS AND NOTES
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