Accounting Principles - PowerPoint PPT Presentation

View by Category
About This Presentation
Title:

Accounting Principles

Description:

Here the Backbone of Accounting has been discussed. The Generally Accepted Accounting Principles which are generally followed round the globe which includes few Fundamental Accounting Assumptions (which are presumed to be followed by every Accountant). The Basis of Accounting & the Accounting Concepts has been explained elaborately. Some Accounting policies & Estimates are discussed – PowerPoint PPT presentation

Number of Views:522

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Accounting Principles


1
Takshila LearningLearn anything
anywherewww.takshilalearning.comcall
91-8800999280
2
Generally Accepted Accounting Principles
  • The Backbone of Accounting Information system,
  • Accounting Assumptions.
  • Accounting Concepts/Conventions.
  • Accounting Standards.
  • ( Accounting Principles are the doctrines behind
    the application of accounting concepts/practices)

3
Fundamental Accounting Assumptions
4
Consistency
  • Meaning Accounting policy chosen should be
    consistently applied
  • Example ABC Ltd. uses WDV method of
    Depreciation, year after year.
  • Objective Comparability, Understandability

5
Accrual
  • A Basis of Accounting.
  • Transactions are recorded as per its accrual/not
    on realization.
  • Expenses are recognized on its incurrence, not
    when paid
  • Incomes are recognized when earned, not received.

6
Basis of Accounting
  • Accrual basis Cash Basis
  • Recording in the period of -
    Recording in the period of
  • transaction accrued (Cash/Credit)
    receipt/payment of Cash
  • Distinction of Capital/Revenue - No such
    distinction
  • transactions
  • Capital Transactions (Balance Sheet)
  • Revenue transactions (P L A/c)
  • Eg. P L A/c, - Eg. Cash, Bank, Receipts
    Income Expenditure A/c
    Payments A/c


7
Going Concern
  • The business will go on forever, It will never
    end either intentionally or unintentionally.
  • Due to this concept, the Assets/Liabilities have
    been divided into Fixed/Current.

8
Fundamental Accounting Assumptions
  • As per Accounting Standard 1
  • Disclosure of Accounting Policies
  • Accounting Assumptions are not to disclosed (if
    followed)

9
Accounting Concepts
  • Business Entity Money Measurement Dual
    Aspect
  • Historical Cost
    Conservatism
  • Matching Periodicity

  • Materiality Full Disclosure
  • Revenue Recognition

10
Business Entity Concept
  • Owner the business Entity are separate persons
  • Personal assets/liabilities not included in
    business accounting
  • Personal expenses from business- Drawings
  • Capital by owner- Liability for business

11
Historical Cost Conept
  • Asset/Liability recorded at ORIGINAL COST
  • Market Value/Time value of money- not considered.
  • Original Cost Purchase Cost Capital
    Expenditure

12
Money measurement Concept
  • Transactions/Events measurable in Money are only
    considered
  • Only Quantitative transactions (No Qualitative)
  • Items, not in money terms not a transaction at
    all- should not be recorded

13
Money
  • A scale/standard of measurement
  • Limitations
  • 1. No universal denomination.
  • 2. Not stable in the dimension
  • 3. Not an exact measurement discipline
  • Elements
  • Identification of objects events to be measured
  • Selection of standard or scale to be used.
  • Evaluation of dimension or measurement standard
    or scale.

14
Valuation Principles
  • Historical Cost Realizable value
  • Current/Replacement Cost
  • Present Value
  • (as per time value of money)
  • Note Future Value is ignored

15
Periodicity Concept
  • Concept of definite accounting period
  • An accounting period is to be selected (as
    business life is indefinite)
  • Helps in
  • Comparison (Intra Firm/Inter Firm)
  • Uniformity/Consistency
  • Matching

16
Matching Concept
  • The periodical revenues earned expenses
    incurred should be matched.
  • Helps in compiling P L A/c

17
Dual Aspect Concept
  • Also known as Double Entry System
  • Every transaction or event has two aspects
  • (Debit Credit)
  • or affect at least two accounts.
  • For every Debit, there is an equal credit, for
    every credit, there is an equal debit.
  • Verification Accounting Equation

  • (Based on Balance Sheet)
  • Capital Liabilities Assets

18
Conservatism Concept
  • Prudence Concept (being Cautious)
  • Do not anticipate the probable
    incomes/profits, but provide for all the probable
    losses
  • leads to understatement of assets
  • (Cost /Market Value, whichever is lower)
  • Contradicts Cost Concept

19
Materiality
  • Items having significant
    effects
  • (relevant for decision
    makers)
  • Should be disclosed separately ( highlighted)
  • exception of the full disclosure concept
  • Note
  • Materiality (both quantitative/qualitative point
    of view)
  • Insignificant/Small items may be ignored.

20
Full Disclosure Concept
  • every aspect of the accounting should be
    shown/disclosed
  • Nothing should be hidden
  • Determines the characteristic of Completeness
  • Informations are disclosed in Notes to accounts

21
Revenue Recognition concept
  • Also called as Realization concept
  • Transaction to be recognized when realized

22
Accounting policies
  • Specific accounting principles and methods of
    applying these principles
  • Policies vary from concern to concern
  • areas where different Accounting policies can be
    used
  • Methods of depreciation
  • Valuation of inventories
  • Valuation of investments
  • Etc.

23
Selection of Accounting policies
  • Basis of selection of Accounting policies
  • Prudence
    Materiality
  • Substance over form
  • Note The characteristics of True fair view
    Accrual is also considered

24
Accounting policies
  • Accounting policies should be consistently
    applied
  • Policy can be changed
  • Change is required as per statute/legislature
  • Change is for compliance of Accounting Standard
  • For more better/appropriate presentation of
    financial statement

25
Accounting estimates
  • The judgments/reasonable estimates needed.
  • Provisions (an accounting estimate)
  • Change in accounting estimate
  • difference arises between certain parameters
    estimated earlier and re-estimated during the
    current period or actual result achieved during
    the current period.

26
MCQs
  • Q.1. RPC Ltd. follows the written down value
    method of depreciating machinery year after year
    by applying the principle of

27
MCQs
  • Q.2. Business unit is separate distinct from
    the persons who supply capital to it, is based
    on

28
MCQs
  • Q.3. All of the following are valuation
    principles except

29
MCQs
  • Q.4. A businessman purchased goods for
    25,00,000 and sold 80 of such goods during the
    accounting year ended 31st March, 2011. The
    market value of the remaining goods was
    4,00,000. He valued the closing Inventory at
    cost. He violated the concept of

30
MCQs
  • Q.5. Writing of transaction in the ledger is
    called

31
MCQs
  • Q.6. The Cost of a Calculator has been treated as
    an expense due to which concept?

32
MCQs
  • Q.7. In double entry book keeping system, every
    transaction affects at least ______account(s).

33
MCQs
  • Q.8. According to which concept, the owner of an
    enterprise pays the interest on drawings?

34
MCQS
  • Q.9. Fundamental Accounting Assumptions are

35
MCQs
  • Q.10. Double entry Principle means
About PowerShow.com