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þ Externally communicated accounting
information must be prepared in accordance
with accounting standards that are understood
by both the senders and the users of the
information. These standards are known as
Generally Accepted Accounting Principles
(GAAP), and provide the general framework for
determining what information is included in the
financial statements and how this information
is to be presented. Since accounting is a
service activity, these principles reflect the
needs of the society and not those of the
accountants or any other single constituency.
These are the guidelines for measurement and
presentation of accounting information and are
used by professional accountants in preparing
accounting information and reports


þ The Money Measurement
þ Entity
þ Going concern
þ Cost
þ Dual aspect
þ Accounting period
þ Conservatism
þ Realization
þ Matching
þ Consistency
þ Materiality
þ Objectivity
+ * * &
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þ Although the business may own seven buildings, five boilers,
fifty cars, thirty trucks, you cannot add them together simply
like that and get to know what the business is worth.
þ Expressing these items in monetary terms by saying that one
has buildings worthRs15 crores, boilers worth Rs 50 lac, cars
worth Rs 1 crore and trucks worth¶s 2 crores would make it
easier for one to add up these items by adding their monetary
values. We may not be able to add apples and oranges directly
but we can add them easily by expressing them in their
monetary terms.
þ So the money provides a common denominator by which the
resources and other factors about the business entity can be
expressed and valued. Expressing in monetary terms also
helps in understanding the changes their impact on the value
of the resources.
þ As you see this concept imposes a severe limitation on the
scope of accounting. It is impossible for the accounting to
record or report the health of the key people in the organization
or the plant that is not working or the labor is going on strike
or that the key people are leaving the organization and other
important factors that may have a direct bearing on the future
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þ Assets are always shown at their cost


price rather than their market price
þ Every transaction must be recorded at
its acquisition price.
þ This does not mean that the asset will
always be shown at the cost price. It
means that the asset is recorded at its
cost price and is systematically reduced
or increases in value by charging
depreciation/appreciation.
þ This is applicable to fixed assets and not
the current assets.
 
þ The value of the assets owned by
the company is equal to the claims
on these assets.
þ This is the basic concept of
accounting.
þ Every Dr entry has its
corresponding Cr entry.
þ This concept can be expressed as
ASSETS = CAPITAL + LIABILITIES
 
þ      
         
 .
þ At the end of each period an
income statement and balance
sheet are prepared for finding the
profit and loss and financial
position of the business as on the
last day of the accounting period.

þ Matching means appropriate
association of related revenues and
expenses.
þ The profit of the business is
ascertained only when the revenue
earned during a particular period is
compared with the expenditure
incurred for earning that particular
revenue.
ë 
þ       
         
      

    
  
 .

þ According to this concept only


those transactions are recorded in
accounting which have actually
taken place and not the ones that
will take place in the future.
 


þ Conservatism
þ Consistency
þ Materiality
þ Full Disclosure
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þ Anticipate the profits but provide
for all losses.
þ The idea behind this concept is that
the
þ -recognize revenues only when
they are reasonably certain
þ - Recognize expenses as soon as
they are reasonably possible
#
þ According to this convention
whatever principle or method is
adopted for recording in the books
should remain unchanged from one
period to another.
#
þ Insignificant events would not be
recorded if the benefit of recording
them does not justify the cost.
 
þ According to this concept ,the
accounts should be prepared
honestly all the relevant
information should be disclosed
   ë 
þ The purpose of accounting
standards is to prescribe a
standard solution or reduce the
alternative permissible solutions to
such accounting issues.
Accounting standards attempt to
harmonize diverse accounting
treatments.
þ Accounting standards codify (that
is, set out systematically) the
generally accepted accounting
principles
   ë 
þ There are four accounting
standards
 Measurement Standard
 Policy Standard
 Disclosure Standard
 Concept Standard

ë


  ë
þ This standard provides guidance
for accounting valuation.
þ For example , how an asset or a
liability be valued.
$%  ë
þ This standard prescribes the
accounting treatment of an
accounting issue.
þ For example ,an accounting
treatment for research and
development
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  ë
þ Disclosure means providing
supplementary information to make
the financial statements more
meaning ful.
þ For example, segmental reporting
and related party disclosures.

  ë 
þ This type standard of standard
does not address any specific
accounting policy.
þ For example, standard about
fundamental accounting
assumptions or the criteria for
choice of accounting policies.
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þ The above mentioned principles,
practices, modifying principles,
policies and standards are regularly
followed while preparing the
income statements.

þ Õntil the Central Government prescribes accounting standards,
accounting standards issued by the ICAI shall be deemed to be the
accounting standards.
þ ''()*&+*,-.&/*0/102-322)40-56-373ï The Accounting Standards issued
by the Council of the Institute of Chartered Accountants of India (lCAI)
up to January 2004 are listed belowï
þ
þ Úumber of the Accounting Standards Title of the Accounting
Standards
þ AS1 Disclosure of accounting
policies
þ AS2 (Revised) Valuation of Inventories
þ AS3(Revised) Cash Flow Statements
þ AS4(Revised) Contingencies and
events occurring after the balance
þ Sheet date.
þ AS5(Revised) Úet Profit and loss for
the period, prior period items
þ And changes in
accounting policies.
þ AS6(Revised) Depreciation accounting
þ AS 7 Accounting for
construction contracts.
þ AS 8 Accounting for research
and development
þ AS 9 Revenue Recognition
þ AS 10 Accounting for fixed
assets
þ AS11 Accounting for effects in
changes in Foreign
þ Exchange rates.
þ AS 12 Accounting for
government grants
þ AS 13 Accounting for
investments
þ AS 14 Accounting for
Amalgamations
þ AS 15 Accounting for
Retirement Benefits in the financial
þ Statements of Employees
þ AS 16 Borrowing costs
þ

þ AS 17 Segment Reporting
þ AS 18 Related party disclosures
þ Impairment of ASSETS
þ AS 29 AS 19 Leases
þ AS 20 Earnings per share
þ AS 21 Consolidated Financial
Statements
þ AS 22 Accounting for taxes on
income
þ AS 23 Accounting for
Investment in Associates in Consolidated
þ Financial Statements.
þ AS 24 Discontinuing operations
þ AS 25 Interim Financial
Reporting
þ AS 26 Intangible assets
þ AS 27 Financial Reporting of
Interest in joint ventures
þ AS 28 Assets