Accounting Principles, Concepts and Conventions
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.
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.
Financial statements are generated for one year, so that performance of the period can be viewed.
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.
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
- Dr. All Expenses
- Purchase Account
- Rent Account
- Conveyance Account
- Printing Stationery Account
Cr. All Incomes
- Salary Account
- Sales Account
- Interest Income
- Dividend Account
Suppliers Account Customers Accounts
M/s Sony India Ltd Dr. The Receiver
M/s Voltas India Ltd Cr. The Giver
Assets Loans & Liabilities Rule
Car Account Dr What Comes in
Cash Account Cr. What Goes out