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 Generally Accepted
Accounting Principles
The Backbone of Accounting Information system,

1. Accounting Assumptions.
2. Accounting Concepts/Conventions.
3. Accounting Standards.

( Accounting Principles are the doctrines behind the

application of accounting concepts/practices)
FUNDAMENTAL ACCOUNTING
ASSUMPTIONS

Consistency

Accrual

Going concern
 Consistency
 Meaning : Accounting policy chosen should be
consistently applied

 Example : ABC Ltd. uses WDV method of

Depreciation, year after year.

 Objective: Comparability, Understandability

 Accrual
 A Basis of Accounting.

 Transactions are recorded as per its accrual/not

on realization.

 Expenses are recognized on its incurrence, not

when paid

 Incomes are recognized when earned, not

received.
 Basis of Accounting

Accrual basis Cash Basis

 Recording in the period of - Recording in the period of
transaction accrued (Cash/Credit) receipt/payment of Cash
 Distinction of Capital/Revenue - No such distinction
transactions
 Capital Transactions (Balance Sheet)

Revenue transactions (P & L A/c)

 Eg. P & L A/c, - Eg. Cash, Bank, Receipts Income &
Expenditure A/c & Payments A/c

 Going Concern

The business will go on forever, It will never end

either intentionally or unintentionally.

Due to this concept, the Assets/Liabilities have

been divided into Fixed/Current.
Fundamental Accounting Assumptions

AS PER ACCOUNTING STANDARD 1

“ DISCLOSURE OF ACCOUNTING POLICIES”

ACCOUNTING ASSUMPTIONS ARE NOT TO

DISCLOSED (IF FOLLOWED)
 Accounting Concepts

Business Entity Money Measurement Dual Aspect

Historical Cost Conservatism

Matching Periodicity

Materiality Full Disclosure

Revenue Recognition
 Business Entity Concept

Owner & the business Entity are separate persons

Personal assets/liabilities not included in business accounting

Personal expenses from business- “Drawings”

Capital by owner- “Liability” for business

 Historical Cost Conept

Asset/Liability – recorded at ORIGINAL COST

Market Value/Time value of money- not

considered.

Original Cost= Purchase Cost + Capital Expenditure

 Money measurement Concept

Transactions/Events measurable in Money are

only considered

Only Quantitative transactions (No Qualitative)

Items, not in money terms “ not a transaction at

all”- should not be recorded
 Interesting, right?
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