The success or failure of the business is measured by the difference between the value of its output (sale/or services) and the cost of such output. You may find out some of the accounting principles have been set out in the qualitative and quantitative characterization of information in IFRS. 1.1 INTRODUCTION Accounting is a system meant for measuring business activities, processing of information into reports and making the findings available to decision-makers. Balance Sheet Equation Concept 10. Content Filtrations 6. Besides, this method helps to measure the income generated during the specific accounting period which also helps to distribute the same periodically. There should always be some documentary evidences in establishing the truth reflected in the said reports or statements. Matching principle is the basis of the accrual principle we have seen before. But actually, to an owner, it is a shift from the personal cash to the business cash. The benefit of this expression is that it provides a common denominator or unit of measurement by means of which heterogeneous facts about a business can be expressed in terms of quantities which can either be added or subtracted. Golden rules convert complex bookkeeping rules into a set of principles which can be easily studied and applied. Steps to Locate Error; Rectification of Errors; Errors of Principle. (b) Another problem is that how much of the capital expenditure should be written-off by way of depreciation for a particular period for matching against revenue creates the problems of finding out the expected life of the asset. ACCOUNTS PAYABLE. Accounting is a historical record (on a monetary basis) of the transaction of a business entity. As the name suggests, these principles are a set of rules and guidelines by maintaining which a company should report its financial data. But this concept also suffers from one limitation. Cost Principle. A number of basic accounting principles have been developed through common usage. The types of accounts viz. The application of the concept becomes relatively easier in this case. Though there are a number of practical difficulties, Cost Concept Method still serves as a fair and adequate basis for the valuation of assets. In other words, a business is viewed as a mechanism for continuous additions of value to the resources or utility used by such unit. P & L A/c) or will appear in the Balance Sheet is to be determined by the accountant on the basis of this concept. However, accounting has prescribed rules to deal with the same. Because, a capital expenditure may be treated as revenue one if the period is taken for a decade instead of a year. Going Concern. The market value of the asset is not to be taken into consideration for the purpose of valuation or depreciation of such asset. Yet, for accounting purposes, it is the best means for measuring varied transactions, e.g. The following points highlight the ten major types of accounting concepts. In this basis, generally, … The asset, when it is acquired, is originally recorded at its cost price and gradually reduced by way of depreciation. (c) In case of long term contracts, usually, amount is not received in proportion to the work done. In case of hire-purchase transactions, however, the title or ownership of the goods is not transferred from the seller to the buyer till the last instalment is paid, As such, the down payments and the instalment received or due should be treated as actual sale, i.e., revenue earned. Therefore, it must be said that every entry must be supported by some objective evidence, as far as possible and, as such, it will minimise the possibility of errors and frauds. The origin of this concept can be traced from this stewardship function. A company is said to … That is, a sole trader is personally liable for his business debts and may be required to use non-business (Personal) assets in order to pay-off the business debts. Under this concept, it is assumed that the business unit is distinct and completely separate from its owners (including employees, officers, creditors and others who are associated with it). Cost Concept 5. Assets = Equities (or, liabilities + capital) is based on this concept. Cash in Hand and Cash at Bank (Which are expressed always in monetary terms). Accounting is both science and art. Needless to mention that at each and every stage of operation, the assets of any unit must always be equal to its equities (i.e. Sometimes half-yearly or quarterly period is also taken into consideration. For example, let’s say that a company has sold products on credit. Accounting Period Concept 6. This method also reveals a clear demarcation of accrued or deferred items of incomes and expenses. As per the accrual principle, the sales should be recorded during the period, not when the money would be collected. You will Learn Basics of Accounting in Just 1 Hour, Guaranteed! It may be expressed in the following manner: This concept is also familiar with the names of : Accruals Deferrals, Accounting Adjustments, Amortization, Depreciation, Going Concern, etc. That is, whether a particular item of expenditure will appear in the income/revenue statement (i.e. The cost principle states that the actual cost of assets … ACCUMULATED DEPRECIATION. Copyright 10. The same is known as equity in the business. Realisation Concept 9. Content Guidelines 2.
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