Accounting Concepts,

Principles & Policies

 Accounting concepts, principle
and policies
 Accounting Concepts are forms of assumptions or
conditions applied in accounting.
 Accounting Principles are rules adopted by the
accountants universally while recording the accounting
transactions.
 Accounting Policies are the specific principles and
procedures implemented by a company’s management
team that are used to prepare the it’s financial statements.
 Accounting Concepts

 Business Entity Concept

 Going concern concept
 Money measurement concept
 Periodicity concept
 Accrual concept
 Basic Accounting Concepts
 Business Entity Concept
A business is an artificial entity distinct from its owners.
 Going Concern Concept
It means that the entity is going to be continue unless it is
liquidated.
 Money Measurement Concept
Each transaction and event must be expressed in monetary
terms.
 Periodicity Concept
It helps to measure the performance of business.
 Accrual Concept
It suggests that incomes and expenses should be recognized as
and when they are earned and incurred.
 Accounting Principles
Principles of income Dual aspect Principles of
recognition principles consistency

Principles of Principles of Timeliness of

Materiality Accounting Information
Expense

Principles of matching Principles of Neutrality

cost & revenue conservatism

Principles of historical Relevance Verifiability

cost

Principles of full Reliability

disclosure
 Principle of Income recognition:
recognition:
It tells that to recognize revenue it has to be realised
not necessary in cash.
 Principle of Expense:
Expense:
A payment becomes expenditure or an expense only
when such payment is revenue in nature and made for
consideration. Revenue expenses are charged against
profit and capital expenses are shown in the balance
sheet as assets.
 Principle of Matching cost & revenue:
revenue:
Revenue earned during a period is compared with the
expenditure incurred to earn that income, whether the
expenditure is paid during that period or not.
 Principle of Historical cost:
cost:
All assets are recorded at the cost of acquisition
and this cost is the basis for all subsequent
accounting for the assets.
 Principle of Full disclosure:
disclosure:
The Companies Act 1956 requires that income
statement and balance sheet of a company must
give a fair and true view of the state of affairs of
the company.
 Principle of Dual aspect:
aspect:
For every debit there is an equivalent credit.
 Principle of Materiality:
Important details of financial status must be
informed to all relevant parties. What is material
and what is not material depends upon the
nature of information and the party to whom
the information is provided.
 Principle of Conservatism:
It says anticipate no profits but provide for all
possible losses.
 Relevance
Information should be relevant to the
decision--making need of the user. It helps users
decision
in predicting future trends of the business or
confirming or correcting any past prediction
they made.
 Reliability
Information is reliable if a user can depend
upon it to be materially accurate and if it
faithfully represents the information that it
purports to present.
 Principle of Consistency:
Consistency:
Consistency is required to help comparison of
financial data from one period to another. Eg
Eg..
FIFO in stock register.
 Timeliness of Accounting Information:
The need for accounting information to be
timely presented to the users for their decision
making needs.
 Neutrality:
Information reported in the financial statements
must be free from bias.
 Verifiability
Accounting information presented in the
financial statements must be verifiable by
independent accountants.
 Accounting Policies
Specificaccounting principles and methods of
accounting adopted by the enterprise while
preparing and presenting the financial statements
Methods of depreciation

Valuation of inventory

Valuation of investments

Valuation of fixed assets

Treatment of contingent liabilities