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U. Mahitaa Kani
BBA Honors I (2019-20)

• Aka. separate entity and economic entity concept

• For purpose of taxes
• Exclusivity of Sole proprietorship and single
member limited liability
• Transactions associated with business must be
recorded separately from those of the owners
• If transactions are not separated financial
information can lose its usability

• Aka. monetary measurement concept ,

measurability concept or monetary unit assumption
• Only monetary transactions are recorded
• human resource skills cannot be recorded even
though it is very important but some of them will
eventually have a monetary impact.
• Makes financial information easy to understand and
• Makes comparison of financial data easier
• Quantity rather than quality

• Time range over which business transactions

are accumulated into financial statements
• Life of business be segregated into equal
• Help compare results of successive time
• Help find profit and loss
• Connected to going concern

• Assume that the company will continue on long

enough to carry out its objectives and commitments.
• not clearly defined anywhere in GAAP and is
subject to a considerable amount of interpretation
regarding when an entity should report it
• sometimes the auditor may have doubts about
whether the entity may continue because of
negative trends and loan defaults . In such cases he
must give a proper report in audit report
• entity will realize its assets and settle its obligations
in the normal course of the business.
• Aka. Doctrine of prudence
• It ensures that the interested users or
investors are assured that the profits are not
• expected losses are losses but expected gains
are not gains.
• Better safe than sorry
• One of the most important concepts
• Major accounting principle under GAAP
• Prevents biased results
• Aka. Duality principle
• every business transaction requires recordation in
two different accounts.
• This concept is the basis of double entry accounting
• aspects of transactions are classified under two
main types: debit and credit
• for each debit there is a corresponding credit and
vice versa.
• The concept is derived from the accounting
• These two aspects are equal and opposite in

• Aka. Materiality constraint

• All those important financial information that is
likely to a knowledgeable person should be in
the preparation of the financial statements of
the company.
• Assess whether the financial information makes
any impact on the opinion of the financial
statement users.
• The materiality concept varies based on the
size of the entity.
• Performance of a business entity is measured with
reference to specific accounting period.
• To ascertain profits,revenue earned should be
matched with the expenses incurred for earning
such revenue.
• Profit = Periodic Revenue less Matched Expenses
• The accrual concept, together with periodicity and
matching concepts,gives rise to
 1. Prepaid Expenses
 2. Outstanding Expenses
 3. Income Receivable
 4. Income received in advance

• Assets are always shown at historical cost or

acquisition cost
• conveniently adopted measurement base for
valuation of assets
• Objective and free from bias
• Easier to tell value of asset
• Represents actual outflow of resources for
acquiring asset
• Accounting principles followed must be consistent
• Frequent changes will distort comparison.
• Eg: If a particular payment is treated as an expense,
then the assumption is that the subsequent years
also it shall be treated as an expense only.
• Exception: a change in the accounting policy should
be made only-
 a. If the adoption of a different accounting policy is required
by Statute
 b. For compliance with an Accounting Standard
 c. If it is considered that the change would result in a more
appropriate presentation of the financial statements of the
• Aka. Revenue recognition concept
• revenue only be recognized once the goods or
services associated with the revenue have been
delivered or rendered, respectively.
• Asset recorded at its historical cost ,any change in
its value should only be recognized when its
• emphasizes there is no certainty of income until a
sale has been made.
• Realization concept is slowly being replaced by
the recognition of assets at their market price.
• All events and transactions which are relevant
shall be disclosed in the books of accounts and
financial statements.
• Users of the financial statements must be aware
of all relevant events and transactions to
understand the real position of the business.
• This helps the company get out of legal disputes
• For eg :the legal suit filed against a company for
violation of copyrights shall be disclosed as part of
the financial statements though it cannot be
measured accurately.
• common set of accepted accounting principles, and
procedures that companies must follow when they
compile their financial statements.
• ensures a minimum level of consistency in a
Company’s financial statements and makes it easier
for investors to analyse and extract useful
• Facilitates comparison across companies
• The 10 general principles of GAAP are: Regularity,
Consistency, Sincerity, Permanence of Methods,
Non-Compensation, Prudence concept ,Continuity,
Periodicity, Materiality , Principle of good faith.
• Common global set of standards.
• financial statements can be consistent, transparent
and comparable around the world.
• IFRS is set up by IASB.
• GAAP is rules-based. IFRS focuses more on
general principles than GAAP, which makes the
IFRS much smaller, cleaner, and easier to
understand than GAAP.
• IFRS covers a broad array of topics, including:
Presentation of financial statements, Revenue
recognition, Employee benefits,Borrowing costs,
Income taxes

• harmonized with the IFRS to make Indian

companies more globally accessible
• Indian companies have a far wider global reach
now and the need to converge reporting
standards with international standards was felt,
which has led to the introduction of IND AS.
• brought consistency in the accounting practices
and principles followed by companies in India and
other companies across world, leading to
enhanced accessibility and acceptability of
financial statements by global investors.