Accounting Principles: Accounting is a language of the business. If every accounting professional begins following his own standards and concepts for accounting of various items then there will be an utter confusion.
To avoid confusion and to attain uniformity, accounting procedure is used within the conceptual framework of ‘Typically Accepted Accounting Concepts’ (GAAPs). The term GAAPs is used to describe rules developed for the preparation of the financial statements and are called concepts, conventions, postulates, concepts and so on. These GAAPs are the foundation of the accounting info system, without which the entire system can not even stand erectly. These principles are the guideline, which specify the parameters and constraints within which accounting reports are produced. Accounting principles are basic standards and assumptions on which the entire accounting system has actually been developed and established. Accountant also complies with various accounting standards provided by the regulative authority for the standardization of accounting policies to be followed under specific situations. These conceptual structures, GAAPs and accounting standards are considered as the theory base of accounting.
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Accounting Concepts
Accounting is frequently called the language of company through which an organization house interacts with the outside world. These requirements are called as accounting concepts.
Accounting concepts have actually been defined as “the body of doctrines commonly related to the theory and treatment of accounting, acting as an explanation of present practices and as a guide for the selection of conventions or treatments where options exist”.
In short, accounting concepts are standards to establish standards for sound accounting practices and treatments in reporting the monetary status and regular performance of a business. These principles can be categorized into 2 categories (i) Accounting ideas; and (ii) Accounting conventions.
In Simple Language
” Accounting principles are a body of teachings commonly related to the theory and procedures of accounting functioning as an explanation of current practices and as a guide for selection of conventions or treatments where alternatives exist.
Accounting principles should satisfy the list below conditions:
- They must be based upon genuine presumptions;-LRB-
- They must be simple, reasonable and explanatory;-LRB-
- They should be followed consistently;-LRB-
- They ought to have the ability to refect future predictions;-LRB-
- They ought to be informative for the users.
ACCOUNTING CONCEPTS
Accounting ideas specify the assumptions on the basis of which financial statements of a business entity are prepared. Specific concepts are viewed, assumed and accepted in accounting to offer a unifying structure and internal logic to accounting procedure. The word idea suggests concept or notion, which has universal application. Financial transactions are translated in the light of the ideas, which govern accounting techniques. Concepts are those fundamental presumptions and conditions, which form the basis upon which the accountancy has been laid. Unlike physical science, accounting ideas are only outcome of broad agreement. These accounting concepts lay the foundation on the basis of which the accounting concepts are formulated.
ACCOUNTING CONVENTIONS
Accounting conventions emerge out of accounting practices, frequently understood as accounting concepts, embraced by numerous organizations over a duration of time. Accounting conventions need not have universal application.
In the research study material, the terms ‘ accounting concepts‘, ‘accounting concepts’ and ‘accounting conventions’ have actually been used interchangeably to imply those standard points of agreement on which financial accounting theory and practice are founded.
Advised
- Accumulated Liabilities
- Limitations of Accounting
- Depreciation Guidance Note
- Capital Structure
- Book Keeping
- Interest on Capital
- Accounting Price Quotes
- Double Entry System
- Book Keeping
