It advocates that all significant information must be disclosed for the sake of the users of accounting data. It means that all incomes and expenses relating to the financial period to which the accounts relate should be taken in to account without regard to the date of receipts or payment.įull Disclosure Principle this principle guides on matters of information significance. Matching Principle It is referred to as matching of expenses against incomes. either cash is received or legal ownership is transferred or both. For example Sale or Profit on sales will be taken into account only when money is realized i.e. Realization Principle this perception advocates recording of only those business dealings which are actually realized. They assure uniformity and understandability. They guide as to how the transactions are to be recorded and reported. Similarly, the concept advocate that expenses should not be recognized when cash is actually paid but even when it has been incurred.Īccounting principles are basic guidelines that provide standards for scientific accounting practices and procedures. This concept advocates that income should not only be recognized and recorded when actual cash is received, but also when it is earned. In a credit transaction, however, a mere obligation towards or by the business is created. In case of a cash transaction, owner’s equity is instantly affected as cash either is received or paid. The Accrual Concept the accrual concept is based on recognition of both cash and credit transactions. For example, the accountant charges depreciation on fixed assets.Īccounting period concept-the relevant timeline within which the financial status of the business can be declared. In fact, the assumption that the business is not expected to be liquidated in the foreseeable future establishes the basis for many of the valuations and allocations in accounting. Because of this assumption, the accountant while valuing the assets does not take into account forced sale value of them (or market value). In other words, there is neither the intention nor the necessity to liquidate the particular business venture in the predictable future. The enterprise is viewed as a going concern, that is, as continuing in operations, at least in the unforeseeable future. Going Concern Concept Accounting assumes that the business entity will continue to operate for a long time in the future unless there is good evidence to the contrary (unforeseeable future). Going concern concept-a business is assumed to continue operating and its assets should be recorded at cost not market value. Money measurement concept-only transactions that can be assigned monetary value are considered in accounting. Separate entity concept-owner of business and the business itself are two different persons. These concepts ensure recording of financial facts on sound bases and logical considerations. They are ideas essentially at mental level and are self-evident. They lay down the foundation for accounting principles. The GAAP principles are classified in to three major categories, namelyĪccounting concept are the common traditions or surroundings or environs or settings upon which science of accounting is based. The learner should keep on referring to them to appreciate their application in daily recording of business transactions. They are set by authoritative bodies namely Financial Accounting Standards Board (FASB) that decide the guidelines of bookkeeping. This are the common laid down principles, standards and procedures to guide recording of transactions. The process of recording business activities in any ledger account or financial statement is governed by the Generally Accepted Accounting Principles (GAAP). Ledger account & Generally Accepted Accounting Principles (GAAP)
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |