ACCOUNTING PRINCIPLES,

STANDARDS & SYSTEMS

 Generally Accepted Accounting
Principles (GAAP)
What is GAAP?
• Concepts & Conventions to be followed for
preparation of financial statements.
• Formulated & recognized by regulatories
bodies throughout the world.
Why the GAAP?
Accounting information should satisfy the
following criteria:
• Understandability
• Relevance
• Consistency
• Comparability
• Reliability
• Objectivity
• GAAP = Accounting Concepts
+
Accounting Conventions
• Adhere to the concept of ‘True & Fair View’
to ensure accuracy & consistency of financial
statements.
 Accounting Concepts
• Business Entity concept
Business has a separate entity from its
owners.
Funds of Owners & Creditors are at the
disposal of Managers.
 Accounting Concepts
• Monetary measurement concept-
Information is presented in monetary terms.
• Going Concern concept –
Accountants assume, unless there is evidence
to the contrary, that a company is not closing
down. This has important implications for the
valuation of assets and liabilities.
 Accounting Concepts
• Cost Concept –
An asset is recorded in books at cost of
acquisition & not at current market value.
• Dual Aspect concept –
Based on double entry system
• Realization concept –
Revenue is considered as being earned
on the date at which it is realised.
 Accounting Concepts
• Concept of Objectivity –
Transactions are supported by
documents.
Ensures credibility.
• Concept of Conservatism –
Income/profits considered only when
actually realised, but account must be
taken of all expenses.
 Accounting Concepts
• Accrual/Matching Concept –
Expenses recognised in an accounting
period should be matched with revenues
recognised in that period.
• Consistency concept –
Methods of valuation of stock,
depreciation , etc. should be followed
consistantly over years.
 Accounting Conventions
• Convention of Disclosure –
Financial statements must fully disclose
the true & fair view of business activities
during a particular period.
All relevant information should be
disclosed.
 Accounting Conventions
• Convention of Consistency –
Accounting practises & methods should
remain consistent over years for prorer
comparison & decision –making.
 Accounting Conventions
• Convention of Conservatism –
It insists the need for not expecting any
profit till the same is realized, as future is
uncertain. But provide for all possible
losses.
 Accounting Conventions
• Convention of Materiality –
This implies that insignificant
information should not be reported in
financial statements.
 Accounting Standards
• In India accounting standards are
formulated by Accounting Standard Board
of ICAI.
• Institutions that Influence the Indian GAAP
are ICAI, SEBI, CBDT, RBI, Dept. of
Company Affairs, Comptroller & Auditor
General of India.
 Accounting Systems
• Cash system
Transaction recorded only when money
is actually received or paid.
Income = revenue received
less
expenses paid
 Accounting Systems
• Accrual/ Mercantile system –
records income/expenses relating to
current year.
 System of Book-Keeping
• Single Entry system
• Double Entry system
 Types of Accounts
• Real accounts-
Tangible & Intangible assets
• Personal accounts
Natural or artificial person created by law.
• Nominal accounts
Income/expenses or Loss/gain.
 Rules for Accounting
• Real a/c –
Dr. what comes in, Cr. What goes out.
• Personal a/c –
Dr. the receiver, Cr. The giver.
• Nominal a/c –
Dr. exp/loss, Cr. Income/gains.