ACCOUNTING CONCEPTS AND CONVENTIONS

PRESENTED BY:SOP B8 DILIP NITHIN RAJI RAIJU ROHITHA TINU

ACCOUNTING CONCEPTS
MEANING
The term concepts includes those basic assumptions or conditions upon which the science of accounting is based. Accounting concepts are also known as Postulates or assumptions Necessary conditions or assumption to be followed while recording the transactions, they provide a foundation for accounting process.

Basic accounting concepts

BUSINESS ENTITY CONCEPT
GOING CONCERN CONCEPT MONEY MEASUREMENT CONCEPT COST CONCEPT

 DUAL ASPECT CONCEPT ACCOUNTING PERIOD CONCEPT PERIODIC MATCHING OF COSTS & REVENUE REALISATION CONCEPT

1) ENTITY CONCEPT

Business is a separate entity or unit from the proprietor. It is applicable to all forms of business organisations. This concept applies whether there is one or more than one owner. Eg: In partnership business,partners are not considered as separate entities in eyes of law,where as for accounting purposes considered as separate entity.

2) GOING CONCERN CONCEPT

Assumes that business has long and indefinite life. This concept does not imply permanent continuance of the enterprise. The enterprise will not be considered as a going concern after liquidation or insolvency. This applies the business as a whole.

3) MONEY MEASUREMENT CONCEPT

Accounting records only monetary transactions. Events or facts ,non monetary in nature are not considered in financial transactions. Measurements of business events in money helps in understanding the state of affairs of the business. eg: a business has a team of dedicated employees,its an asset to the business,but they are not shown in the books of accounts as they cannot be measured in monetary basis.

4) COST CONCEPT
Closely related to going concern concept. Applied only in case of fixed asset. Asset will be recorded in the books at its cost. Market value is not considered because it leads to risk of fluctuations, hence cost price is considered. Depreciation is deducted from the asset.

5) DUAL ASPECT CONCEPT

Every business transaction has dual effect. Whenever there is inflow there must be outflow. E.g.Purchase of goods worth Rs 1000 is made,here on one hand goods are received and on the other money is paid. Double entry system of book keeping is created with the help of this concept.

6) ACCOUNTING PERIOD
Financial account transactions are prepared for a specific period, ie 12 months accounting period. At end of each accounting period an Income statement and balance sheet are prepared. Income statement discloses the profit or loss during the accounting period. Balance sheet depicts the financial position as on the last day of accounting period

7) PERIODIC MATCHING OF COSTS & REVENUE

Based on accounting period concept. Here matching means,appropriate association of related revenues and expenses. Income earned by the business can be measured only when revenue is compared with expenditure incurred for earning that income.

8) REALISATION CONCEPT
Revenue is recognized when sale is made. Though there may be increase in value of certain assets, there cannot be any revenue or profit as there is no sale taking place.

BASIC ACCOUNTING CONVENTIONS

CONSERVATISM FULL DISCLOSURE CONSISTENCY MATERIALITY

1) CONSERVATISM