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principles of accounting and accounting1802 .pdf


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principles of accounting and accounting
Within the modem world no business are able to afford to keep secretive because various parties
for example creditors, employees, taxation authorities, investors, public and government etc.,
have an interest to know about the affairs from the business. Affairs of your business may be
studied mainly by consulting final accounts and the balance sheet of the particular business. Final
accounts as well as the balance sheet are end products of book-keeping. As a result of need for
these statements it became essential for the accountants to produce some principles, concepts
and conventions which may be regarded as fundamentals of accounting. Such fundamentals
having wide acceptance give reliability and creditability on the financial statements prepared with
the accountants. The requirement for 'generally accepted accounting principles' arises for 2
reasons: First, to get logical and consistent in recording the transactions and 2nd, to comply with,
the established practices and operations.
There is no agreement on the list of accountants as regards the standard concepts of accounting.
There is absolutely no uniformity in generally accepted accounting principles (GAPP). The termsaxioms, assumptions, conventions, concepts, generalizations, methods, rules, doctrines,
techniques, postulates, standards and canons are employed freely and inconsistently inside the
same sense.
Principles
"An overall law or rule, adopted or professed as helpful tips for action, a settled ground or basis of
conduct or practice." This definition given by dictionaries comes nearest to describing what most
accountants mean through the word 'Principle'. Care needs to be taken making it clear that as
placed on accounting practice, the globe principle, fails to connote a rule for which there could be
no deviation. An accounting principle is not a principle in the sense that it admits of no conflict
with other principles.
Postulates
Mean to believe without proof, to ignore or positive consent, a job assumed as self- evident.
Postulates are assumptions but they are not arbitrary deliberate assumptions but generally
recognized assumptions which reflect the judgment of 'facts' or trend or events, assumptions
which were borne in past by facts supposed by legal institutions which makes them enforceable at
some level.
Doctrines
Mean principles of belief: what the scriptures teach on any subject. It reference a proven principle
propagated by a teacher which happens to be followed in strict faith. But in accounting practice,
no such doctrine necessary adhered to however the word denotes the overall principles or
policies to become followed.

Axiom
Denotes a statement of truth which cannot be questioned by anyone.
Standards
Make reference to the cornerstone expected in accounting practice, under different
circumstances. In Indian context, the Institute of Chartered Accountants of India (ICAI) constituted
an Accounting Standards Board on 21st April, 1977. The main purpose of ASB is usually to
formulate accounting standards bearing in mind the applicable laws, customs, usages and
business environment.
Accounting Assumptions ( Read this page )
The International Accounting Standards Committee (lASC) and also the Institute of Chartered
Accountants of India (ICAI) treat (vide IAS-I & AS-I) these since the fundamental accounting
assumptions:
(1) Going concern
From the ordinary course, accounting assumes that this business continue to exist and continue
its operations to have an indefinite period later on. The entity is assumed to remain in operation
sufficiently long to undertake its objects and plans. The values connected to the assets will be on
such basis as its current worth. The assumption is the fact that fixed assets usually are not meant
for re-sale. Therefore, it can be contended that a balance sheet which happens to be prepared
according to record of facts on historical costs cannot show the genuine or real amount of the
concern with a particular date. The underlying principle there is the earning power instead of the
price is definitely the grounds for valuing a continuing business. The company is to continue
indefinitely as well as the financial and accounting policies are followed to keep the continuity of
the business unit.
(2) Consistency
There must be uniformity in accounting processes and policies in one period to a different.
Material changes, if any, should be disclosed even though there may be improvement in
technique. A difference of method in one period to a different will affect the result of the trading
materially. Provided that the accounting procedures are adhered to consistently from year to year
the final results disclosed within the financial statements will be uniform and comparable.
(3) Accrual
Accounting tries to recognize non-cash events and circumstances while they occur. Accrual is
concerned with expected future cash receipts and payments: it will be the accounting technique of
recognizing assets, liabilities or income for amounts supposed to be received or paid in future.

Common examples of accruals include purchases and sales of services or goods on credit,
interest, rent (not really paid), wages and salaries, taxes. Thus, we make record of expenses and
incomes regarding the accounting period whether actual cash is disbursed or received or
otherwise. When a fundamental accounting assumption (i.e. Going concern, consistency and
accrual) will not be followed (from the preparation of financial statements) the actual fact must be
disclosed. [AS-I para 27].


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