Accounting Concepts and Conventions

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DRUG STORE AND BUSINESS MANAGEMENT
Accounting Concepts and Conventions
Mr. Maroti M. Jeurkar Lecturer, YBCP, chandrapur
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ACCOUNTING Definition- Accounting may be defined
as the process of identifying, measuring,
recording and communicating the economic event of
an organization to the interested users of the
information. ACCOUNTING CONCEPT Definition-
Accounting concept means the necessary assumption
or condition upon which accounting is based
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Accounting Concepts 1.Entity concept 2. Dual
Aspect concept 3. Going concern concept 4.
Accounting Period Concept 5. Money measurement
concept 6. Cost concept 7. Revenue realization
concept 8. Matching concept 9. Verifiable
objective evidence concept 10.Accrual concept
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Accounting Concepts 1.Business Entity Concept
The concept assumes that the business is trated
as a unit or entity apart from its owners,
creditors, managers and other. The concept of
septate entity is applicable to all forms of
business organisation i.e. proprietorship,
partnership or a company. 2.Dual Aspect Concept
It is the primary rule of accounting, which
states that every transaction effects two
accounts. 1.Debited 2. Credited The system of
recording transaction based on this concept is
called as Double entry system 3.Going Concern
Concept The concept assumes that the business
will continue its operations for an indefinite
period. Most of the enterprises continue to
operate profitably for indefinite period are
regarded as going concerns.
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Accounting Concepts Accounting Period Concept
(Periodicity Concept or Time period concept) The
concept says that financial statement should be
prepared for every period, i.e. at the end of the
financial year( 12 or 6 or 1month).This time
called as accounting period. Either a calendar
year January, 1 to December 31st may be
accounting year or April1 to March 31st of next
year may be accounting yr. Money Measurement
Concept As per this concept, only those
transaction which can be expressed in monetary
(money) terms are recorded in the books of
accounts. By expressing all assets and
liabilities in term of money it is possible to
include them during the preparation of financial
statement. Cost concept This concept holds that
all the assets of the enterprise are recorded in
the accounts at their purchase price. The price
are carried forward from year to year at
acquisition cost.
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• Accounting Concepts
• Revenue realization Concept As per this concept,
  revenue should be recorded by the firm only when
  it is realized. According to this concept revenue
  is measured by the amount charge for goods sold
  or services rendered to customer. The GAAP
  (generally accepted accounting principles)
  require that revenue is recognized in respect of
  the period during which the sale is deemed to
  have occurred.
• 3 basis are used for determine the period in
  which revenue is realized
• Sales basis
• Cash basis
• Production basis

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Accounting Concepts Matching Concept The
concept holds that, the revenue for the period,
should match the expenses. It is very important
for correct determination of net profit
. Verifiable objective evidence concept
according to this concept the accounting data
must be definite, verifiable and free from
personal bias. Therefore all a/c transaction
should be made on the basis of supporting
business documents such as , invoices, vouchers
and recieipts which are verifiable by the
auditors at a later stage. Accrual Concept The
concept states that revenue is to be recognized
when they become receivable, while expenses
should be recognized when they become due for
payment.
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Accounting Conventions Definition- The term
convention is used to denote established customs
or traditional practices as guide to the
preparation of accounting statement. The
following conventions are commonly
used- 1.Disclosure 2.Materiality 3.Consistency 4.
Conservatism
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Accounting Conventions Disclosure This
principle state that the financial statement
should be prepared in such a way that it fairly
discloses all the material information to the
users, so as to help them in taking a rational
decision. Materiality This concept is an
exception to the full disclosure convention which
states that only those items to be disclosed in
the financial statement which has a significant
economic effect. Consistency Financial
statements can be compared only when the
accounting policies are followed consistently by
the firm over the period. However, changes can be
made only in special circumstances. Conservatism
This convention states that the firm should not
anticipate incomes and gains, but provide for all
expenses and losses.
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