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Description
Flashcards by Vijaya Raikode, updated more than 1 year ago
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Created by Vijaya Raikode
almost 3 years ago
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| Question | Answer |
| Transaction | mean ‘a business, performance of an act, an agreement’ |
| event | mean ‘a happening, as a consequence of transaction(s), a result.’ |
| The Committee on Terminology set up by the American Institute of Certified Public Accountants formulated the following definition of accounting in 1961:: Accounting | “Accounting is the art of recording, classifying, and summarising in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof.” |
| Generally Accepted Accounting Principles’ (GAAPs) | term GAAPs is used to describe rules developed for the preparation of the financial statements and are called concepts, conventions, postulates, principles etc. |
| The word concept means | idea or notion, which has universal application. |
| basis of which the accounting principles are formulated. | accounting concepts |
| accounting principles | “Accounting principles are a body of doctrines commonly associated with the theory and procedures of accounting serving as an explanation of current practices and as a guide for selection of conventions or procedures where alternatives exist.” |
| Entity concept: | Entity concept states that business enterprise is a separate identity apart from its owner. Accountants should treat a business as distinct from its owner. |
| Money measurement concept: | As per this concept, only those transactions, which can be measured in terms of money are recorded |
| Periodicity concept / concept of definite accounting period | According to this concept accounts should be prepared after every period & not at the end of the life of the entity. |
| Accrual concept: | Under accrual concept, the effects of transactions and other events are recognised on mercantile basis i.e., when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. |
| Matching concept: | In this concept, all expenses matched with the revenue of that period should only be taken into consideration. |
| Revenue – Expenses = | Profit |
| Periodic Profit | = Periodic Revenue – Matched Expenses |
| Going Concern concept | The financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. |
| Cost concept: | By this concept, the value of an asset is to be determined on the basis of historical cost, in other words, acquisition cost. |
| Realisation concept: | Any change in value of an asset is to be recorded only when the business realises it. |
| Dual aspect concept: | Every transaction or event has two aspects |
| Conservatism: | Conservatism states that the accountant should not anticipate any future income however they should provide for all possible losses. |
| Consistency: | the accounting policies are followed consistently from one period to another; a change in an accounting policy is made only in certain exceptional circumstances. |
| An enterprise should change its accounting policy in any of the following circumstances only: | a. To bring the books of accounts in accordance with the issued Accounting Standards. b. To comply with the provision of law. c. When under changed circumstances it is felt that new method will reflect more true and fair picture |
| Materiality: | According to materiality principle, all items having significant economic effect on business of enterprise should be disclosed in financial statements and any insignificant item which will only increase the work of accountant but will not be relevant to users’ need should not be disclosed in financial statements. |
| FUNDAMENTAL ACCOUNTING ASSUMPTIONS | (i) Going Concern (ii) Consistency (iii) Accrual |
| CONSIDERATIONS IN DETERMINING CAPITAL AND REVENUE EXPENDITURES | PREM Nager P- Purpose of expenses: R- Recurring nature of expenditure: E- Effect on revenue generating capacity of business: M- Materiality of the amount involved: N- nature of business |
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