Accounting Principles

Dr Vasudha Kumar Assistant Professor

IMS, University of Lucknow

Lucknow

What is Accounting ?

Accounting is a process or system of identifying financial transactions ,measuring ,classifying and analyzing these transactions in order to communicate the results or economic information to the people who are interested in it.

An analysis of the above brings out the following functions of accounting:

1) Recording. 2) Classifying. 3) Summarizing. 4) Dealing with financial transactions. 5) Analyzing and Interpreting. 6) Communicating.

ACCOUNTING PRINCIPLES

It is defined as those rules of action or conduct which are adopted by the accountants universally while recording accounting transaction.

These principles can be classified into two categories:

1) Accounting Concepts.

2) Accounting Conventions

Accounting Concepts

The term ‘concepts’ includes those basic assumptions or conditions upon which the science of accounting is based .The following are the important accounting concepts:

1) SEPARATE ENTITY CONCEPT. 2) GOING CONCERN CONCEPT. 3) MONEY MEASUREMENT CONCEPT. 4) COST CONCEPT. 5) DUAL ASPECT CONCEPT. 6) ACCOUNTING PERIOD CONCEPT. 7) PERIODIC MATCHING OF COST AND REVENUE CONCEPT 8) REALISATION CONCEPT

Separate Entity Concept- In accounting business is considered to be a separate

and distinct entity from its owners. Going Concern Concept:- The Concept Of Going Concern assumes that a business firm would continue to carry out its operations indefinitely . for a fairly long period of time and would not be liquidated in the foreseeable future.

Money Measurement Concept:- As per this concept accounting involves and records only monetary transactions. I . E transactions measurable in terms of money

Cost Concept The cost concept requires that all assets are recorded in the book of accounts at their purchase price.

Dual Aspect Concept:- Every business transaction has a dual effect. The duality concept is commonly expressed in terms of fundamental accounting equation, which is as follows:- Assets=Liabilities + Capital

Accounting Period Concept:- According to this concept, the life of the business is divided

into appropriate segments for studying the results shown by the business after each segment.

Periodic Matching Of Cost And Revenues Concept:- It states that expenses incurred in an accounting period should

be matched with revenues during that period. Revenue Recognition(realization) Concept:- The concept of revenue recognition requires that the revenue

for a business transaction should beincluded in the accounting records only when it is realized

Accounting Convention

The term ‘conventions’ includes those customs or traditions which guide the accountant while preparing the accounting statements.

The following are the important accounting conventions:

1) Convention of Conservatism.

2) Convention of Full Disclosure.

3) Convention of Consistency.

4) Convention of Materiality.

1.Conservatism According to this convention, the accountants

follows the rule ‘anticipate no profit but provide for all possible losses' while recording business

transactions. 2. Full Disclosure:- According to this convention accounting reports should disclose fully and fairly the information they purport to represent.

3. Consistency:-

According to this convention accounting practices

should remain unchanged from one period to

another.

4. Materiality:-

According to this convention the accountant should

attach importance to material details and ignore

insignificant details

References

• Tulsiyan P.C. , (2009), Financial Accounting , Pearson Publication

• Narayanaswamy R. ( 2017), Financial Accounting : A Managerial Perspective, PHI learning Publication