Accounting Concepts & Conventions – A comprehensive discussion

Accounting Principles are the presumptions and conditions on the basis of which monetary declarations of an entity are prepared. Accounting principles are the base for solution of accounting concepts. Accounting ideas have universal application.

( 1) Entity concept:

Entity idea assumes that business Enterprise is separate from its owners. Accounting transactions must be recorded with this idea just.

( 2) Periodicity Principle:

Based on going issue concept an entity is assumed to have indefinite life. If we wish to measure the monetary efficiency of an entity then we require to divide the operations of entity for a specific duration, otherwise it’s really difficult to determine the performance of organization.
Periodicity concept presumes a small but convenient portion of time duration for measuring business performance. Normally it assumes 1 year is considered this purpose.

( 3) Money measurement concept:

Based on this concept deals which can be determined in monetary terms only are to be taped in books of accounts. Any deals which can not be transformed into financial terms need to not be taped in books. Since cash is the medium of exchange and unit of measurement for revealing the financial efficiency, it does not accept the deals aside from financial to tape-record in books of accounts.

( 4) Accrual concept:

According to this idea transactions should be acknowledged in the books of accounts only when they occur and not on any cash basis. The primary advantage of this principle is that financial Statements prepared as per this principle inform the users not only about previous occasions including payment and invoice of money however likewise about obligations to pay cash in the future and resources that represent cash to be received in the future.

( 5) Matching principle:

Based on this idea all the expenditures which can be matched with the income of that period just need to be taken into consideration for monetary reporting. This idea is based upon Accrual idea as it provides importance to incident of a cost which is invested for creating a revenue. This idea leads to adjustments at the end like impressive expenses, earnings and Prepaid expenses, earnings.

( 6) Going concern concept:

As per this idea monetary declarations are prepared on an assumption that business will continue its operations for the foreseeable future.

( 7) Expense principle:

As per this concept assessment of properties ought to be done at historic costs/acquisition expense.

( 8) Realisation concept:

This principle states that any change in worth of an asset is to be taped just when business relaises it. This principle highly prefers Realisation of the value for which we wish to provide impact in books of accounts.

( 9) Double Aspect idea:

This principle is base for double entry Accounting.s of a transaction. Under the system, aspects of deals are categorized into 2 main types:
1. Debit
2. Credit
Every deal ought to have a Debit and credit. Debit is the part of transaction that represents the boost in possessions and expenses, and the decline in liabilities, equity and earnings. And credit is the part which is an outcomes of reduces the property, increases the liability, income, gains, equity.

Accounting conventions:

Accounting conventions are the typically accepted guidelines in preparation of financials.They occur from customs and useful application.They are not legally recorded policies.

Following r the accounting conventions

( 1) Conservatism:

As per this principle while Accounting one ought to not expect the income however ought to supply for all possible losses. Stock evaluation is done as per this concept just, as expense or Market value which ever is lower.

( 2) Consistency:

As per this concept the accounting policies followed in preparation and discussion of monetary statements ought to correspond from one period to another duration. A change in Accounting policy can be made only when it is required by law, or for better discussion of accounts or modification in Accounting standards.

( 3) Materiality:

As per this concept products having considerable economic effect on business of the business must be disclosed in financial declarations and any unimportant product which is not appropriate to the users ought to not be revealed in financial statements.

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