NOTES

THEORY BASED OF ACCOUNTING

Accounting principles, concepts on conventions are commonly known as

GAAPS (generally accepted Accounting principles)

Basic Rules that define the parameters and constraints within which
accounting operates.
(ie guidelines for preparing the financial statements)

ICAI has used Accounting Standards to standardise the accounting

practices adopted to prepare financial statements

# Accounting principles - Rules adopted by accountants universally

while recording accounting transactions.

Accounting concepts Accounting conventions

Basic assumption within which they are the outcome of

accounting operates.
They are generally accepted.
accounting rules.
It enables the users of
P.S to understand them
better and in the same manner
accounting practices or
principles being followed over
a period of time.
They may undergo a change
with time to being
an improvement in avality of
Accounting information

CLASS 11 ACCOUNTS
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THEORY BASED OF ACCOUNTING

Fundamental concepts
1. Going concern Assumption - business shall continue for a foreseeable
period and there is no intention to close the business.

2. Consistency Assumption - method / Accounting practice once selected

and adopted, should be applied every year, and business should not
change it ever.

EX - Methods of charging depreciation.

Written down Straight line

Accoding to this assumption, if a firm select then it will be in no intention

to switch to 1 after an year or so.

3. Accrual Assumption - a transaction is recorded in the books of

Account at the time when it is entered into and not when the settlement
takes place.
(whether cash is paid / received or not)

Ex- Ram purchase machinery from she shyam on 10th feb amounting
10,00,000 to be paid on 10th April Then according to this principle it
should be recorded as a purchase on 10th Feb in the Books of Both the
parties, even. Cash settled on 10th April.

RECTIFICATION OF ERRORS (ACCOUNTS)

CLASS 11 ACCOUNTS
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THEORY BASED OF ACCOUNTING

Other Accounting Principles

1. Business entity / Accounting entity - Business is seperate from its

owners. ie... transactions are recorded from Business point of view and
not from that of the owners.
Capital introduced by owner liability for the business.

2. Money measurement Principle - transactions and events that can be

measured in /money terms] are recorded in the books of account.

3. Accounting period principle - life of the enterprise is broken into

smaller periods. (usually one year) which is known as
accounting period.
it is necessary in order to access and compare the performance and
efficiency of the enterprise over the years or with other organizations.

4. Full disclosure principle - there should be complete and

understandable reporting on the financial statements of all significant
information relating to the economic affairs of the organisation.

5. Materiality Principle - " relative importance of an item "An item

should be regarded as material if there is a reason to believe that
knowledge of it would influence the decision. of an informed investor",
only those items should be disclosed who are material for the
organisation.

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CLASS 11 ACCOUNTS
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THEORY BASED OF ACCOUNTING

Note - An item may be material for one enterprise but not be the
material for other
Ex - Repair of laptop for us and for ambani

6. Prudence or conservatism principle-

"Do not anticipate a profit, but provide all possible losses"

7. Cost or Historic cost principle - Purchase value

{ cost + any other expense}
and the asset will keep on reflecting with purchase value less
depreciation even if the value market value changes

8. Matching concept/principle - "Revenue of this year period should be

matched with the expenses of that period only (whether cash or
outstanding or prepaid). It will reflect a fair financial picture.

9. Dual Aspect or Duality - every transaction has 2 aspects

Debit Credit
of equal amount,
(ie... for every debit their is an equal credit in one or more accounts.)

CLASS 11 ACCOUNTS
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THEORY BASED OF ACCOUNTING

10. Revenue recognition concept - Revenue is considered to have been

realised when a transaction has been entered into and the obligation to
receive the amount is established.

}
Ex-Sales-Feb 2018 → Revenue should be recognised
Amt rec - May 2018 as on Feb 2018.

}
Example - Advance rec - Feb 2018
→ Recognised as of may 2018.
Sales - may 2018

11. verifiable objective concept - all the accounting transaction should

be evidenced and supported by business document.

#Accounting Standard - they are the set of guidelines, ie.. generally

accepted Accounting principle that are followed for preparation and
presentation of financial Statements.

- These are issued by the councial of ICAI

- They are mandatory in nature.

IFRS-International Financial Reporting Standards

IASB - International Accounting Standard Board
Ind-As - Indian Accounting Standard.

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THEORY BASE OF ACCOUNTING CLASS 11
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