Accounting Principle

Rules and regulations in accounting are known as

accounting principles .
Accounting principles are the rules and guidelines
that business must follow when reporting
financial data.
The Financial Accounting Standards Board
(FASB) issues a standardized set of accounting
principles in the U.S. referred to as Generally
Accepted Accounting Principles (GAAP). 
 Cont…d
Accounting Principles are categorized into two:
1.Accounting Concepts – Accounting Concepts
are assumptions upon which accounting is
based.
2. Accounting Conventions – Accounting
Conventions are traditions and customs for
preparation and presentation of financial
statement .
 Types of Accounting Concept
1. Business Entity Concept
2. Money Measurement Concept
3. Going Concern Concept
4. Cost Concept
5. Dual Aspect Concept
6. Accounting period Concept
7. Matching Concept
8. Realization Concept
9. Accrual Concept
 1. Business Entity Concept

It is generally accepted that the moment a

business enterprise is started it attains a separate
entity as distinct from the persons who own it.
Means from accounting point of view owner
and business are separate from each other.
When owner given money to business it is
called as Capital and When owner taken money
from business for personal use are called as
Drawings
2. Money Measurement Concept
Accounting records only those
transactions which can be expressed in
monetary terms.
Non-monetary activities such strike by
employees, efficiency of employees and
death of owner even if have impact on
business , accounting doesn’t consider as
these are not expressed in terms of money
 3. Going Concern Concept
This concept assumes that the business
enterprise will continue to operate for a fairly
long period in the future.
The significance of this concept is that the
accountant while valuing the assets of the
enterprise does not take into account their
current resale values as there is no immediate
expectation of selling it
 4.Cost Concept
This concept is yet another fundamental concept
of accounting which is closely related to the
going-concern concept. As per this concept:
(i) An asset is ordinarily entered in the
accounting records at the price paid to acquire
it i.e., at its cost price
(ii) This cost price is the basis for all subsequent
accounting for the asset.
 5.Dual Aspect Concept
This concept is the core of accounting.
According to this concept every business
transaction has a dual aspect. One is receiving
aspect another is giving aspect.
Example – Goods purchased for cash Rs.
100,000. Here in this transaction there are two
aspect i.e. on one hand business is receiving
goods worth Rs.100,000 , on the other hand
business is paying Rs. 100,000 cash
 6.Accounting Period Concept
Twelve month or one year is taken as
time period once in which profit/ loss
of the business is calculated and
financial position is determined .
This is called Accounting Period
Concept
 7. Matching Concept
According to this concept Expenses a
year is matched with Income of that
year find out profit or loss of the
business. Here Income and Expenses
of a particular period are compared to
know the result of the business.
 8. Realization Concept
As per this concept revenue is said to be
realized from the point when property in
goods transfer from seller to buyer. Buyer
becomes legally liable to pay, no matter
whether seller received the cash or not.
 9. Accrual Concept
As per this concept transactions relating to
received , receivable , paid , payable all
are taken into account to find out profit
/loss of the business . Means Cash and
credit transactions all are taken in
accounting to determine the result.
Types of Accounting Convention
1.Convention of Consistency

2. Convention of Materiality

3. Convention of Conservatism

4. Convention of Full Disclosure

 1. Convention of Consistency
According to this convention it is essential that
accounting procedures, practices and method should
remain unchanged from one accounting period to
another. This enables comparison of performance in
one accounting period with that in the past.
For example there are different methods of charging
depreciation , one method should be followed
constantly years together unless there’s a strong
reason change it. It will help in comparison
 2. Convention of Materiality
The implication of this convention is that accountant
should attach importance to material details and
ignore insignificant ones. In the absence of this
distinction accounting will unnecessarily be
overburdened with minute details. The question as to
what is a material detail and what is not is left to the
discretion of individual accountant.
Example- Purchase of dustbin are taken into as
revenue expenditure rather than capital expenditure ,
it will have not significant impact on result
 3. Convention of Conservatism
It is a world of uncertainty. So it is always better
to pursue the policy of playing safe. This
convention based on the assumption that
“Anticipate no gain , recognize all possible
future losses” .
For this convention that the inventory is valued
`at cost or market price whichever is less’
Provision are kept for expected future losses
4. Convention of Full Disclosure
According to this convention, all accounting
statement should be honestly prepared and to
that end full disclosure of all significant
information should be made.

All information which is of material interest to

proprietors, creditors, and investors should be
disclosed in accounting statements.