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Accounting Principles Notes

The key accounting principles are: 1) The business entity concept treats a business as distinct from its owners. 2) Transactions must be measurable in monetary terms to be recorded. 3) Accounts are prepared assuming the business will continue indefinitely. Some other principles are that assets are recorded at cost, revenues are recognized when earned, expenses must be matched to the revenues of the period, and financial statements must fully and objectively disclose all material information consistently over time.

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Ankur Musharraf
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12 views

Accounting Principles Notes

The key accounting principles are: 1) The business entity concept treats a business as distinct from its owners. 2) Transactions must be measurable in monetary terms to be recorded. 3) Accounts are prepared assuming the business will continue indefinitely. Some other principles are that assets are recorded at cost, revenues are recognized when earned, expenses must be matched to the revenues of the period, and financial statements must fully and objectively disclose all material information consistently over time.

Uploaded by

Ankur Musharraf
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Accounting principles

1.Business Entity: This concept assumes that business has distinct and separate
entity from its owners. Thus, for the purpose of accounting, business and its
owners are to be treated as two separate entities.
2. Money Measurement: The concept of money measurement states that only
those transactions and happenings in an organisation, which can be expressed in
terms of money are to be recorded in the book of accounts. Also, the records of
the transactions are to be kept not in the physical units but in the monetary units.
3.Going Concern: The concept of going concern assumes that a business firm
would continue to carry out its operations indefinitely (for a fairly long period
of time) and would not be liquidated in the near future.
4.Accounting Period: Accounting period refers to the span of time at the end of
which the financial statements of an enterprise are prepared to know whether it
has earned profits or incurred losses during that period and what exactly is the
position of its assets and liabilities, at the end of that period.
5. Cost Concept: The cost concept requires that all assets are recorded in the
book of accounts at their cost price, which includes cost of acquisition,
transportation, installation and making the asset ready for the use.
6.Dual Aspect: This concept states that every transaction has a dual or two- fold
effect on various accounts and should therefore be recorded at two places. The
duality principle is commonly expressed in terms of fundamental accounting
equation, which is: Assets = Liabilities + Capital
7.Revenue Recognition: The concept of revenue recognition requires that the
revenue for a business transaction should be considered realised when a legal
right to receive it arises.
8.Matching Concept: The concept of matching emphasises that expenses
incurred in an accounting period should be matched with revenues during that
period. It follows from this that the revenue and expenses incurred to earn this
revenue must belong to the same accounting period.
9. Full Disclosure: This concept requires that all material and relevant facts
concerning financial performance of an enterprise must be fully and completely
disclosed in the financial statements and their accompanying footnotes.
10. Consistency: This concepts states that accounting policies and practices
followed by enterprises should be uniform and consistent one the period of time
so that results are comparable. Comparability results when the same accounting
principles are consistently being applied by different enterprises for the period
under comparison, or the same firm for a number of periods.
11.Conservatism: This concept requires that business transactions should be
recorded in such a manner that profits are not overstated. All anticipated losses
should be accounted for but all unrealised gains should be ignored.
12.Materiality: This concept states that accounting should focus on material
facts. If the item is likely to influence the decision of a reasonably prudent
investor or creditor, it should be regarded as material, and shown in the financial
statements.
13.Objectivity: According to this concept, accounting transactions should be
recorded in the manner so that it is free from the bias of accountants and others.

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