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ACCOUNTING CONCEPTS, PRINCIPLES AND CONVENTION ACCOUTING PRINCIPLES: - Principles of Accounting are the genral law
adopted or Proposed as a guide to action, a settled ground or basis of conduct of practice.

CLASSIFICTION OF ACCOUNTING PRINCIPLES

ACCOUNTING CONCEPT ACCOUTING CONVENTION

ACCOUTING CONCEPT: The assumption on the basis of which financial

statement of a business entity are prepared.

BUSINESS ENTITY CONCEPT: - Entity concept status that business

enterprises is a separate identity apart from its owner. - Accountant should treat a business as distinct from its business. - Business transaction are recorded in the business books of account - and owners transaction in his personal books of Accounts

MONEY MEASUREMENT CONCEPTS:- As per this concept,

only those transaction which can be measured in term of money are recorded.

Transactions, even if, they affect the result of business materially, are not recorded if they are not convertible in monetary term.

PERIODICITY CONCEPT: - This is also called the concept of

definite accounting period concept.

As per going concern concept an indefinite life of the entity is assumed. For a business entity it inconvenience to measure performance achieved by the entity in the ordinary course of business, So, a small but workable fraction of life of entity for measuring of performance and looking at the financial position. As per this concept the account should be prepared after every period & not at the end of the life of entity.

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In the other word: the life of entity is divided into small parts for measuring its financial position and performance after a certain period.

ACCRUAL CONCEPT: - Under accrual concept, the effects of

transaction and other events are recognized on mercantile basis i.e. when they occur ( and not as cash or cash equivalent paid or received.) and they are recorded in the accounting records and reported in the financial statement of the periods to which they relate.

-Accrual means recognition of revenue and costs as they are earned or incurred and not as money is received or paid.

MATCHING CONCEPT: - All expenses matched with the revenue of

that period should only be taken into consideration.

-In the financial statement of the organization if any revenue is recognized then expenses related to earn that revenue should also be recognized.

GOING CONCERN CONCEPT:-The financial statements are

normally prepared on the assumption that an enterprise is going concerned and will continue in operation for a foreseeable future. -Hence it is assumed that the enterprises have neither the intention nor the need of liquidate or curtail maternally the scale of its operation.

NOTE:-Accrual, matching and periodicity concept work together for income measure and recognized of assets &liability.

COST CONCEPT:- By this concept, the value of an asset is to be

determined on the basis of historical cost, in other words on its acquisition cost.

REALIZATION CONCEPT:- It closely follows the cost concept any

changes in value of an assets to be recorded only when business relishes it.

DUAL ASPECT CONCEPT:-

- This concept is core of double entry book keeping.

-every transaction or events has two fold aspect one is debit and another is credit. -Debit has been arrived from Italian word debito.

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-Credit has been arrived from Italian word credito.

ACCOUNTING CONVENTION
A convention is defined as a custom or generally accepted practice based on genral custom or genral agreement between parties Accounting convention means the guidelines or behavior that is followed for preparing financial statements.

1. CONSERVATISM OR PRUDENCE CONCEPT:- conservatism

states that the accountant should not anticipate income and should provide for all possible losses & liability.

2. CONVENTION OF FULL DISCLOSURE:- There should be

complete and understandable reporting on the financial statements of all significant information relating to economical affairs of the entity.

3. CONVENTION OF CONSISTENCY:- In order to achieve

comparability of the financial statement of an enterprises through time, the accounting policies are followed consistently from one period to another a change in an accounting policies is only if it required for i) by statute (provision of law) ii) for compliance with an accounting standard or iii) if it is considered that the change would result in a more appropriate presentation of the financial statement.

4. CONVENTION OF MATERIALITY:- This principle permits other to

be ignored.

According to materiality principle all the items having significant economic effect on the business of the enterprises should be disclosed in the financial statement. Material items means the knowledge of an item may influence the decision of the users of financial statement.

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ACCOUNTING POLICIES
Accounting policies refer to the specific accounting principles and methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statement.

CONSIDERATION IN THE SELECTION OF ACCOUNTING POLICIES

CONSIDERATION OF ACCOUNTIN POLICIES BASED ON i) prudence ii) substance over form iii) materiality Substance over form means: - That transaction should be accounted for in accordance with actual happening and economic reality of transaction and not by its legal form. Example:- hire purchase

FUNDAMENTAL ACCOUNTING ASSUMPTION

Going concern (refer concept no-6) ii) Consistency( refer convention no-3) iii) Accrual (refer concept no -4) - They are usually not specially stated because their acceptance and use are assumed. - If a fundamental accounting assumption is not followed, then the fact should be disclosed.
i)

The profit or income can be ascertained by following basis i) Cash Basis of Accounting: - This is system in which accounting ii)
entries are recorded only when cash is received or paid. Mercantile Basis/ Accrual Basis: - Accrual basis of accounting is based on the concept of realization and expiration and follows two basis of accounting principles, viz revenue recognition and the mercantile principles.

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