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Premium member Presentation Transcript ACCOUNTING : CONCEPT OF ACCOUNTING PRINCIPLES AND CONVENTIONS ACCOUNTINGAccounting:: Accounting : Accounting can be defined as the process of identifying, measuring, recording and communicating the economic events of an organization to the interested users of the information.ACCOUNTING DEFINITION: : RECORDING OF FINANCIAL TRANSACTIONS ONLY. RECORDING(CASH BOOK,SALES BOOK ETC.) CLASSIFYING SUMMARISING RECORDING IN TERMS OF MONEY INTERPRETATION OF THE RESULTS ACCOUNTING DEFINITION:WHY ACCOUNTING???: TO KEEP SYSTEMATIC RECORD OF BUSINESS TRANSACTIONS. TO CALCULATE PROFIT & LOSS TO KNOW THE EXACT REASONS LEADING TOO NET PROFIT OR NET LOSS. TO ASCERTAIN THE FINANCIAL POSITION OF THE BUSINESS. TO ASCERTAIN THE PROGESS OF THE BUSINESS FROM YEAR TO YEAR. TO PREVENT & DETECT ERRORS & FRAUDS. TO PROVIDE INFORMATION TO VARIOUS PARTIES. WHY ACCOUNTING ???TYPES OF ACCOUNTING:: FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT ACCOUNTING TAX ACCOUNTING SOCIAL RESPONSIBILITY TYPES OF ACCOUNTING: USERS OF ACCOUNTING:: INTERNAL USERS MANAGEMENT(TOP MGT) EMPLOYEES DIRECTOR(CEO) OWNER LABOUR DEBTORS FINANCIAL INSTITUTION GOVT . CUSTOMERS SUPPLIERS, ETC. USERS OF ACCOUNTING: EXTERNAL USERSCLASSIFICATION OF ACCOUNTS : ACCOUNTS CLASSIFICATION OF ACCOUNTS PERSONAL ACCOUNTS IMPERSONAL ACCOUNTS REAL ACCOUNTS NOMINAL ACCOUNTSCLASSIFICATION OF ACCOUNTS : Accounts in the names of persons are known as “Personal Accounts”(debit the receiver credit the giver) Accounts in the names of assets are known as “Real Accounts”(debit what comes in,Credit what goes out) Accounts in respect of expenses and incomes are known as “Nominal Accounts”(debit the expenses and credit income and gains) CLASSIFICATION OF ACCOUNTSACCOUNTING PRINCIPLES : ACCOUNTING PRINCIPLES Accounting principles can be subdivided into two categories · Accounting Concepts; and · Accounting Conventions .ACCOUNTING PRINCIPLES: : ACCOUNTING PRINCIPLES: · Accounting Concepts · Accounting Conventions The term ‘concept’ is used to connote accounting postulates, that is necessary assumptions and conditions upon which accounting is based. The term ‘convention’ is used to signify customs and traditions as a guide to the presentation of accounting statements.ACCOUNTING PRINCIPLES : ACCOUNTING PRINCIPLES Accounting Concepts Business Entity Concept Money Measurement Concept Cost Concept Or Historical Cost Concept Going Concern Concept Dual Aspect Concept Revenue Recognition (realisation) concept Matching Concept Accrual concept Accounting Period ConceptACCOUNTING PRINCIPLES : ACCOUNTING PRINCIPLES Accounting Conventions Convention of Consistency Convention of Disclosure Convention of Conservation Convention of MaterialityBusiness Entity Concept : Business Entity Concept Business is treated as a separate entity or unit apart from its owner and others. All the transactions of the business are recorded in the books of business from the point of view of the business as an entity and even the owner is treated as a creditor to the extent of his/her capital.Money Measurement Concept : : Money Measurement Concept : In accounting, we record only those transactions which are expressed in terms of money. In other words, a fact which can not be expressed in monetary terms, is not recorded in the books of accounts .Cost Concept :: Cost Concept : Transactions are entered in the books of accounts at the amount actually involved. Suppose a company purchases a car for Rs.1,50,000/- the real value of which is Rs.2,00,000/-, the purchase will be recorded as Rs.1,50,000/- and not any more. This is one of the most important concept and it prevents arbitrary values being put on transactions.Going Concern Concept :: Going Concern Concept : It is persuaded that the business will exists for a long time and transactions are recorded from this point of view.Dual Aspect Concept :: Dual Aspect Concept : Each transaction has two aspects, that is, the receiving benefit by one party and the giving benefit by the other. This principle is the core of accountancy.Dual Aspect Concept :: Dual Aspect Concept : Thus, the dual aspect can be expressed as under Capital + Liabilities = Assets or Capital = Assets – LiabilitiesDual Aspect Concept:: For example, the proprietor of a business starts his business with Cash Rs.1,00,000/-, Machinery of Rs.50,000/- and Building of Rs.30,000/-, then this fact is recorded at two places. That is Assets account (Cash, Machinery & Building) and Capital accounts. The capital of the business is equal to the assets of the business. Dual Aspect Concept:Accounting Period Concept: : Accounting Period Concept: Strictly speaking, the net income can be measured by comparing the assets of the business existing at the time of its liquidation. But as the life of the business is assumed to be infinite, the measurement of income according to the above concept is not possible. So a twelve month period is normally adopted for this purpose. This time interval is called accounting period.ACCRUAL CONCEPT:: It provide more appropriate information about the performance of business enterprise as compared to cash basis Accural concept implies equally to revenues And expenses.In accrual concept revenue is recorded when sales are made or services are rendered and it is immateria; whether cash is received or not. ACCRUAL CONCEPT:ACCOUNTING PRINCIPLES :: ACCOUNTING PRINCIPLES : Accounting Conventions: The term ‘convention’ is used to signify customs and traditions as a guide to the presentation of accounting statements.Convention of Consistency :: Convention of Consistency : In order to enable the management to draw important conclusions regarding the working of the company over a few years, it is essential that accounting practices and methods remain unchanged from one accounting period to another. The comparison of one accounting period with that of another is possible only when the convention of consistency is followed.Convention of Disclosure: : Convention of Disclosure: This principle implies that accounts must be honestly prepared and all material information must be disclosed therein. The contents of Balance Sheet and Profit and Loss Account are prescribed by law. These are designed to make disclosure of all material facts compulsory.Convention of Conservation : Convention of Conservation Financial statements are always drawn up on rather a conservative basis. That is, showing a position better than what it is, not permitted. It is also not proper to show a position worse than what it is. In other words, secret reserves are not permitted.CONVENTION OF MATERIALITY:: This convention is an exception to the convention of full disclosure.according to this convention,items having an insignificant effect or being irrelevent to the user need not be disclosed.these unimportant items are either leftout or merged with other items,otherwise accounting statements will be unnecessarily overburdened. CONVENTION OF MATERIALITY:Thank you : Thank you You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.