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Presentation

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

• 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
MONEY MEASUREMENT

• 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
interpret
• Makes comparison of financial data easier
• Quantity rather than quality
ACCOUNTING PERIOD

• Time range over which business transactions


are accumulated into financial statements
• Life of business be segregated into equal
parts
• Help compare results of successive time
periods
• Help find profit and loss
• Connected to going concern
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.
CONSERVATISM
• Aka. Doctrine of prudence
• It ensures that the interested users or
investors are assured that the profits are not
overestimated
• 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
DUAL ASPECT
• 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
equation.
• These two aspects are equal and opposite in
nature.
MATERIALITY

• 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.
MATCHING
• 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
COST

• 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
CONSISTENCY
• 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
enterprise.
REALISATION
• 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
realized.
• 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.
FULL DISCLOSURE
• 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.
GAAP
• 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
information.
• 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.
IFRS
• 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
IAS

• 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.
THANK YOU