3. CONCEPTS
The term ‘concept’ is used to connote
accounting postulates, that is necessary assumptions
and conditions upon which accounting is based.
RUTUJA
4. BUSINESS ENTITY CONCEPT
The business and its owner(s) are two separate existence
entity. Any private and personal incomes and expenses of the
owner(s) should not be treated as the incomes and expenses of
the business.
BUSINESS OWNER / INDIVIDUAL
NITIN
5. GOING CONCEPT
It is assumed that the firm is a going concern and
its business will continue for a long period (indefinite time). As
per this concept, fixed assets are recorded at their original cost &
depreciation is charged on these assets.
FIRM
TIME
PERIOD 1 2 3 4 5 6 7 8 and so on…….
RAJAT
6. MONEY MEASUREMENT CONCEPT
An Accounting record is made only of Information
which that can be expressed in monetary terms. All
transactions of the business are recorded in terms of
money.
RUTUJA
7. COST CONCEPT
Assets should be shown on the balance sheet at
the cost of purchase instead of current value .The cost of
fixed assets is recorded at the date of acquisition cost.
time passage
CURRENT PRICE
Rs 7000
ASSET
PURCHASED AT
Rs 5000
*And firm is going concern
NITIN
9. Mr. Lobo owns XYZ Co. He draws a cheque from his S/B
a/c and purchases a bike to fulfill his son’s want / need. Is
his transaction recorded in the firms book ?
NO As per BUSINESS ENTITY CONCEPT
Business and individual are two separate entity.
Here fulfilling his son’s need is his personal concern .
RAJAT
10. It is generally assumed that the business will not
liquidate in foreseeable future, as per which concept ?
GOING CONCEPT
As it is assumed that business will run for
undefined period .
RUTUJA
11. Are Qualitative transactions recorded in accounts ? For ex:
knowledge, stress level etc
NO MONEY MEASUREMENT
As per CONCEPT
As this concept says record only monetary
transactions.
Here Qualitative things c annot be determined in
monetary terms.
NITIN
12. A machine was purchased ( asset) on 1.1.2012 for Rs
3Lakh (including expenses such as loading + installation). The
market value of the machine on 1.3.2012 was estimated at Rs
3.5Lakh . While finalizing the account the machine was
recorded at Rs 3.5Lakh in the books. Is the recorded
transaction correct?
NO Violation of COST CONCEPT
Assets should be valued at the price paid to
acquire them.
Here acquired value is 3lakh , and hence it should be
recorded.
RAJAT
13. DUAL ASPECT CONCEPT
Every transaction recorded in books affects at least
two accounts. If one is debited then the other one is
credited with same amount. This system of recording is
known as “DOUBLE ENTRY SYSTEM”.
C
R
A/c A A/c B
RUTUJA
14. ACCOUNTING PERIOD CONCEPT
Monitoring the performance of the organization
periodically i.e.
Entire life of the firm is divided into time intervals for
ascertaining the profits / losses are known as accounting
periods.
Accounting period is of two types:
NITIN
15. MATCHING CONCEPT
The main object of running a business is to earn
profit. Thus all the revenue of a particular period will be
matched with the cost of that period. Accordingly, for
matching costs with revenue, first revenue should be
recognized & then costs incurred should be recognized.
Cost is divided
Advertisement and shown in B/S
cost 400L for 4 years
100L 1st year
Revenue is
earned for 4 100L 2nd year
years
100L 3rd year
100L 4th year
RAJAT
16. REALISATION CONCEPT
This concept deals with the problem,
when the revenue should be realized?
Revenue is realized on three basis-:
RUTUJA
17. ACCRUAL CONCEPT
In this concept revenue is recorded when sales are
made or services are rendered & it is immaterial whether
cash is received or not. In the same way expenses are
recorded in the accounting period in which they assist in
earning the revenues whether the cash is paid for them or
not.
NITIN
18. OBJECTIVE CONCEPT
Accounting transactions should be recorded in an
objective manner, free from the personal bias of either
management or the accountant who prepares the accounts. It
is possible only when each transaction is supported by
verifiable documents & vouchers such as cash memos,
invoices.
RAJAT
20. Economic life of an enterprise is split into the
periodic intervals as per -
PERIODICITY CONCEPT
1st year 2nd year 3rd year 4th year 5th year 6th year
RAJAT
21. A worker of ABC.ltd earns Rs1000 every month. But he was
paid Rs 13,000 for 12 months. How is the transaction recorded ?
Salary a/c DR Rs12,000 ---- Current year expenses
Next year expenses
Pre-paid salary a/c DR Rs 1,000 ----
To cash/bank a/c ---- Rs13,000
Expenses should be recognized when they are incurred, and not
when they are paid.
Here Rs12,000 should be recorded as current year expenses .
But Rs1,000 is paid in adv, so it remains outstanding as it would
incur in next year.
NITIN
22. According to which concept, the accounting data
& accounting information should be verifiable and
free from personal bias?
OBJECTIVE CONCEPT
Eg: In the case of fixed assets, the amount can
be verified by purchase bill.
RUTUJA
23. CONVENTIONS
The term ‘convention’ is used to signify customs
and traditions as a guide to the presentation of
accounting statements .
NITIN
24. CONSERVERTISM / PRUDENCE
All anticipated losses should be recorded but all
anticipated gains should be ignored. Provisions are made for
all losses even though the amount cannot be determined with
certainty.
ANTICIPATED
LOSSES
ANTICIPATED
GAINS
RAJAT
25. FULL DISCLOSURE
Information related to the economic affairs of the
enterprise should be completely disclosed which are of
material interest to the users such as Proforma , contents of
balance sheet and P&L a/c prescribed under the Companies
Act 1956.
RUTUJA
26. CONSISTENCY
Accounting method should remain consistent year by year.
This facilitates comparison in both directions i.e. intra firm & inter
firm. This does not mean that a firm cannot change the
accounting methods according to the changed circumstances
of the business.
1st year 2nd year 3rd year
DEPRECIATION
1st year 2nd year 3rd year
VALUATION
OF STOCK
NITIN
27. MATERIALITY
An item should be regarded as material if there is
reason to believe that knowledge of it would influence
decision of informed investor. It is an exception to the
convention of full disclosure. Items having an insignificant
effect to the user need not to be disclosed.
RAJAT
28. A business man purchases goods(stock) costing Rs 8lac.
He sold goods costing worth Rs 6lac. The market value of the
remaining stock was Rs 60,000. During the accounting year end
cl.stock was recorded at cost price. Is the recorded transaction
right?
NO CONSERVERTISM /
As per PRUDENCE
All anticipated losses are to be recorded.
Here cost price of cl.stock is Rs2lac, but as per the
market value there is a loss of Rs1.4lac. And thus it
should be recorded.
RUTUJA
29. From past years Mr.Rustum & Co used to record their
closing stock (inventories) under FIFO method. Due to current
deflation condition, to maintain their same profits they
switched to LIFO method. This leads to violation which
concept?
CONSISTENCY CONVENTION
Change in the method should be done only
if it is required by statute (ICAI) and if the
result is vague /not clear presentation of
financial statement.
NITIN
30. The cost of small calculator is accounted as an
expense and not shown as asset in the financial statement
of a business entity due to-
MATERIALITY
As per CONVENTION
As the calculator is immaterial compare to
other costly assets.
RAJAT
