www.mbaonlinepapers.

com product for SMU STUDENTS selling and distributing

prohibited in any case Financial and Management Accounting MB0041 previous
year papers and notes
1

Q1. What do you mean by accounting? Explain the various concepts of
accounting and the need for having accounting standards?
Sol Accountancy or accounting is the art of communicating financial information about
a business entity to users such as shareholders and managers. The communication is
generally in the form of financial statements that show in money terms the economic
resources under the control of management
Such financial information is primarily used by managers, lenders, investors, tax
authorities, regulators, and other decision makers to make resource allocation decisions
between and within companies, organizations, and public agencies. It involves the
process of recording, verifying, and reporting of the value of assets, liabilities, income,
and expenses in the books of account (ledger) to which debit and credit entries
(recognizing transactions) are chronologically posted to record changes in value.
Accounting has also been defined by the AICPA as "The art of recording, classifying,
and summarizing in a significant manner and in terms of money, transactions and events
which are, in part at least, of financial character, and int`erpreting the results thereof.
ACCOUNTING CONCEPTS

In the previous lesson, you have studied the meaning and nature of business
transactions and objectives of financial accounting. In order to maintain uniformity and
consistency in preparing and maintaining books of accounts, certain rules or principles
have been evolved. These rules/principles are classified as concepts and conventions.
These are foundations of preparing and maintaining accounting records. In this lesson we
shall learn about various accounting concepts, their meaning and significance.

OBJECTIVES

After studying this lesson, you will be able to:
explain the term accounting concept;
explain the meaning and significance of various accounting concepts : Business
Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept,
Duality Aspect concept, Realisation Concept, Accrual Concept and Matching
Concept.

MEANING AND BUSINESS ENTITY CONCEPT

Let us take an example. In India there is a basic rule to be followed by everyone that
one should walk or drive on his/her left hand side of the road. It helps in the smooth flow
of traffic. Similarly, there are certain rules that an accountant should follow while
recording business transactions and preparing accounts. These may be termed as
accounting concept. Thus, this can be said that :