Accounting Priciples and Concepts

Accounting Concepts,
Principles & Policies

Accounting Principles
Accounting Concepts Accounting

Conventions
Accounting Policy
Basic Accounting Concepts
 Accounting principles are accepted as such if they
are
1. Objective
2. Usable in practical situations
3. Reliable
4. Feasible (they can be applied without incurring
high costs); and
5. Comprehensible to those with a basic knowledge
of finance.
Accounting concepts & principle
 Principles are rules adopted by the accountants
universally while recording the accounting transactions.
 The principles are classified as concepts & conventions.
 Concepts are the form of assumptions or conditions.
 Conventions are those customs & traditions which
guide the accountants while preparing the accounting
statements.
 ICAI has established ASB ( Accounting Standard
Board) in 1977 with the objective to formulate the
accounting standards.
 There are 35 accounting standard issued by ASB
Accounting Concepts
 Business Entity Concept

 Going concern concept
 Money measurement concept
 Periodicity concept
 Accrual concept
Basic Accounting Concepts
 The Entity Concept
A business is an artificial entity distinct from its owners.
 Money Measurement Concept
Each transaction and event must be expressed in monetary terms.
 Going Concern Concept
It means that the entity is going to be continue unless it is
liquidated.
 Periodicity Concept
It helps to measure the performance of business.
 Accrual Concept
It suggests that incomes and expenses should be recognized as and
when they are earned and incurred.
Accounting Principles
Principles of income recognition
Principles of Expense
Principles of matching cost & revenue
Principles of historical cost
Principles of full disclosure
Dual aspect principles
Modifying principles
Principles of Materiality
Principles of consistency
Principles of conservatism
 Principle of Income recognition: Revenue is considered
as being earned on the date on which it is realized.
Unrealized revenue should not be taken into
consideration.
 Principle of Expense: A payment becomes expenditure

or an expense only when such payment is revenue in
nature and made for consideration. Revenue expenses are
charged against profit and capital expenses are shown in
the balance sheet as assets.
 Principle of Matching cost & revenue: Revenue earned

during a period is compared with the expenditure incurred
to earn that income, whether the expenditure is paid
during that period or not.
 The Matching Concept
It suggests that revenue earned in an accounting
year is offset or matched with all the expenses
incurred during the same period.
 Concept of Prudence
It says anticipate no profits but provide for all
possible losses.
 The Realization Concept

It tells that to recognize revenue it has to be
realised not necessary in cash.
 Principle of Historical cost: All assets are
recorded at the cost of acquisition and this cost is
the basis for all subsequent accounting for the
assets.
 Principle of Full disclosure: The Companies Act

1956 requires that income statement and balance
sheet of a company must give a fair and true view
of the state of affairs of the company.
 Principle of Dual aspect: For every debit there is

an equivalent credit.
 Principle of Materiality: Important details of
financial status must be informed to all relevant
parties. What is material and what is not material
depends upon the nature of information and the
party to whom the information is provided.
 Modifying Principle: The cost of applying a

principle should not be more than the benefit
derived from. If it is so, that principle should be
modified.
 Principle of Consistency: Consistency is
required to help comparison of financial data
from one period to another. Eg. FIFO in stock
register.
 Principle of Conservatism or Prudence:

Accountant follow the rule ‘anticipate no
profit but provide for all anticipated losses.
Accounting Policies
Specificaccounting principles and methods of
accounting adopted by the enterprise while
preparing and presenting the financial statements
Methods of Depreciation
Valuation of Inventory
Valuation of Investments
Valuation of Fixed assets
Treatment of Contingent liabilities

Accounting principles, Concepts and
policies
Principles
Policies
Basic Principles Concepts • Methods of
• Income depreciation
• Business entity
recognition • Valuation of
• Going concern
• Expenses • Money inventory
• Matching cost &
Measurement
• Valuation of
revenue • Periodicity investments
• Historical cost • Accrual • Valuation of fixed
• Full Disclosure
• Dual aspect
assets
• Modifying
• Treatment of
• Materiality contingent liabilities
• Consistency • Etc.,
• Conservatism

Accounting Priciples and Concepts

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Accounting Priciples and Concepts

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Accounting Concepts,

Principles & Policies

Accounting Concepts Accounting

 Business Entity Concept

Principles of matching cost & revenue

Principles of historical cost

Principles of full disclosure

Dual aspect principles

 Principle of Expense: A payment becomes expenditure

 Principle of Matching cost & revenue: Revenue earned

 The Realization Concept

 Principle of Full disclosure: The Companies Act

 Principle of Dual aspect: For every debit there is

 Modifying Principle: The cost of applying a

 Principle of Conservatism or Prudence:

Treatment of Contingent liabilities

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