Accounting Principles, Concepts and Conventions

Accounting Principles,

In an accounting period, the income displayed must be set off against the expenses incurred to generate that profits. This gives a true & fair view of the profit earned in that period.

Accrual

Under accrual, method of accounting revenue is recognised when it is earned rather than when received, similarly expenses are recorded when incurred than actually paid. Thus, under accrual systems of accounting transactions are recorded on the basis of income earned or expense incurred, irrespective of actual receipt or payment.

Periodicity

 Financial statements are generated for one year, so that performance of the period can be viewed.

Entity

The business entity principle is laid on the principle that Business and its owner are two separate entities views the business as an entity separate from its owner(s). When the owner of the business takes money from the business for his personal use, through the business & its assets belong to him, the transaction is recorded as the owner receiving money from the business.

Money Measurement

In accounting, all transactions are measured using a common unit of measurement, which is money. Only transactions that can be expressed in terms of money are recorded.

Classification of Accounts

Assets Accounts– These accounts are accounts of assets and properties such as land and building, plant, furniture, etc.

Liability Accounts– These accounts are accounts of lenders, creditors, for goods and services.

Capital Accounts– These accounts refer to the accounts of proprietor who has invested in the business.

Revenue Accounts– These are accounts of income and gains e.g:- sales/ interest income.

Expenses Accounts– The accounts which show the amount spent on the operation of business like: – purchases, wages paid.

Types of Accounts

Nominal Accounts

Expense Accounts

Income Accounts

Rule

  • Dr. All Expenses
  • Purchase Account
  • Rent Account
  • Conveyance Account
  • Printing Stationery Account

Cr. All Incomes

  • Salary Account
  • Sales Account
  • Interest Income
  •  Dividend Account

Personal Accounts

Suppliers Account Customers Accounts

Rule

M/s Sony India Ltd   Dr. The Receiver
M/s Voltas India Ltd   Cr. The Giver

Real Accounts

Assets Loans & Liabilities Rule

Car Account Dr What Comes in
Cash Account Cr. What Goes out

Bank Account
Building Account
Stock
Goodwill

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