This document discusses several key accounting concepts:
1. The business entity concept treats a business and its owners as separate entities for accounting purposes. Transactions between the business and its owners are recorded separately.
2. The realization concept states that revenue should only be recorded in accounting when a transaction is completed and the business has a legal right to receive payment.
3. Accounting concepts like money measurement, cost, dual aspect, and matching provide the basic rules and assumptions for uniformly recording business transactions and preparing financial statements. Consistency and uniformity are important objectives of accounting concepts.
This document discusses distribution network design in supply chains. It describes several options for distribution network structures, including manufacturer direct shipping, distribution through intermediaries, and retail models. Key factors that influence distribution network design are discussed, such as customer needs around response time, product variety and availability, and costs of inventory, transportation, facilities and information. Tradeoffs between these factors are considered for different network designs. Examples of various companies' distribution choices are provided.
Indian Accounting Standards AS2 - Valuation of InventoriesAkhilesh Krishnan
This document summarizes Ind AS-2 regarding the valuation of inventories. It defines inventories as assets held for sale, in production, or as supplies. Inventories are valued at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and other costs to bring inventories to their present condition. Common costing methods are specific identification, FIFO, and weighted average. The valuation method used must approximate actual costs.
This document discusses reverse supply chains, which refers to the movement of goods from customers back to vendors, completing the supply chain loop. It describes the key processes in a reverse supply chain as product acquisition, reverse logistics, inspection/disposition, remanufacturing/refurbishing, and marketing. Examples are given of industries that utilize reverse supply chains like electronics, automotive, and retail. Managing returns can help reduce costs and increase profits. Reverse logistics is becoming increasingly important as a strategic business process.
The document discusses capital structure and various theories related to it. It defines capital structure as the combination of capital from different sources of financing. It then discusses factors that affect capital structure decisions like control, risk, cost, size and nature of business. It explains optimal capital structure as the perfect mix of debt and equity that maximizes firm value while minimizing cost of capital. It also discusses various methods of analyzing optimal capital structure including EBIT-EPS analysis and indifference point analysis. Finally, it summarizes different theories around capital structure like net income, net operating income, traditional and Modigliani-Miller approaches.
This chapter describes methods for allocating joint costs between joint products. Joint products are two or more products produced from the same raw materials, like petrol and diesel from crude oil. By-products have lower value. Methods for allocating joint costs include sale value at split-off point, reverse cost method, net realizable value method, physical unit method, and contribution margin method. The net realizable value method is often most suitable.
Marginal costing is an accounting technique that separates total costs into fixed and variable components. It only includes variable costs when determining the cost of producing an additional unit. This helps management compare costs between time periods and determine profitability. CVP (cost-volume-profit) analysis studies the relationships between selling price, costs, volume, and profits. It shows how costs and profits change with volume and can help with decision making, budgeting, and performance evaluation. While useful for short-term analysis, marginal costing has limitations such as difficulty separating fixed and variable costs.
Ppt on joint and by product by Hilal Mir ktb.HILAL AHMAD MIR
This document discusses the concepts of joint products and by-products. It defines joint products as two or more products produced from the same process, where both products are important but the main product typically has a higher cost. By-products are produced incidentally along with the main product and have lower value. Several methods are presented for allocating joint costs between joint products, such as average unit cost, physical unit, and market value methods. The differences between joint products, main products, and by-products are also outlined. Accounting methods for joint products and by-products include allocating costs and treating by-product sales as income.
The profit/volume (P/V) ratio expresses the relationship between contribution and sales. It is calculated as contribution divided by sales or sales minus variable costs divided by sales. The P/V ratio is important for analyzing the profitability of a business, as a higher ratio means more profit and a lower ratio means less profit. The ratio can be increased by raising prices, lowering variable costs, or selling more profitable products. The P/V ratio is also useful for calculating the break-even point, profit at a given sales volume, sales needed for a target profit, and sales required to maintain profits with a price reduction.
This document discusses distribution network design in supply chains. It describes several options for distribution network structures, including manufacturer direct shipping, distribution through intermediaries, and retail models. Key factors that influence distribution network design are discussed, such as customer needs around response time, product variety and availability, and costs of inventory, transportation, facilities and information. Tradeoffs between these factors are considered for different network designs. Examples of various companies' distribution choices are provided.
Indian Accounting Standards AS2 - Valuation of InventoriesAkhilesh Krishnan
This document summarizes Ind AS-2 regarding the valuation of inventories. It defines inventories as assets held for sale, in production, or as supplies. Inventories are valued at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and other costs to bring inventories to their present condition. Common costing methods are specific identification, FIFO, and weighted average. The valuation method used must approximate actual costs.
This document discusses reverse supply chains, which refers to the movement of goods from customers back to vendors, completing the supply chain loop. It describes the key processes in a reverse supply chain as product acquisition, reverse logistics, inspection/disposition, remanufacturing/refurbishing, and marketing. Examples are given of industries that utilize reverse supply chains like electronics, automotive, and retail. Managing returns can help reduce costs and increase profits. Reverse logistics is becoming increasingly important as a strategic business process.
The document discusses capital structure and various theories related to it. It defines capital structure as the combination of capital from different sources of financing. It then discusses factors that affect capital structure decisions like control, risk, cost, size and nature of business. It explains optimal capital structure as the perfect mix of debt and equity that maximizes firm value while minimizing cost of capital. It also discusses various methods of analyzing optimal capital structure including EBIT-EPS analysis and indifference point analysis. Finally, it summarizes different theories around capital structure like net income, net operating income, traditional and Modigliani-Miller approaches.
This chapter describes methods for allocating joint costs between joint products. Joint products are two or more products produced from the same raw materials, like petrol and diesel from crude oil. By-products have lower value. Methods for allocating joint costs include sale value at split-off point, reverse cost method, net realizable value method, physical unit method, and contribution margin method. The net realizable value method is often most suitable.
Marginal costing is an accounting technique that separates total costs into fixed and variable components. It only includes variable costs when determining the cost of producing an additional unit. This helps management compare costs between time periods and determine profitability. CVP (cost-volume-profit) analysis studies the relationships between selling price, costs, volume, and profits. It shows how costs and profits change with volume and can help with decision making, budgeting, and performance evaluation. While useful for short-term analysis, marginal costing has limitations such as difficulty separating fixed and variable costs.
Ppt on joint and by product by Hilal Mir ktb.HILAL AHMAD MIR
This document discusses the concepts of joint products and by-products. It defines joint products as two or more products produced from the same process, where both products are important but the main product typically has a higher cost. By-products are produced incidentally along with the main product and have lower value. Several methods are presented for allocating joint costs between joint products, such as average unit cost, physical unit, and market value methods. The differences between joint products, main products, and by-products are also outlined. Accounting methods for joint products and by-products include allocating costs and treating by-product sales as income.
The profit/volume (P/V) ratio expresses the relationship between contribution and sales. It is calculated as contribution divided by sales or sales minus variable costs divided by sales. The P/V ratio is important for analyzing the profitability of a business, as a higher ratio means more profit and a lower ratio means less profit. The ratio can be increased by raising prices, lowering variable costs, or selling more profitable products. The P/V ratio is also useful for calculating the break-even point, profit at a given sales volume, sales needed for a target profit, and sales required to maintain profits with a price reduction.
This document discusses key concepts in marginal costing such as marginal cost, variable cost, fixed cost, contribution, and absorption costing. It provides examples of how to calculate marginal costs and contribution margins. It also highlights the differences between marginal costing and absorption costing, such as how fixed costs and inventory valuations are treated. Specifically, marginal costing only includes variable costs in inventory and product costing, while absorption costing includes both fixed and variable costs. This allows marginal costing to focus on contribution and profitability.
Advantages and limitations of cost accountingUday Teke
Cost accounting provides several advantages to management, employees, creditors, government, and society. For management, it helps fix responsibility, measure economic performance, set prices, aid decision making, prepare interim accounts, minimize waste, facilitate comparisons, and increase profitability. Employees benefit through better wages, job security, and merit rating. Creditors gain increased confidence and knowledge of business solvency. The government uses cost data for policymaking, taxation, and national planning. Society benefits from cost reduction sharing lower prices, and new employment opportunities. However, cost accounting also has limitations as it can be expensive, complex, not universally applicable, lack precision, and exclude social accounting.
Marginal costing is a technique that differentiates between fixed and variable costs. It assigns only variable costs to cost units and writes off fixed costs for the period against total contribution. Contribution is calculated as sales revenue minus variable costs. Marginal costing is useful for decision making as it shows the effect on profit of changes in volume or product mix. Key aspects include classifying costs, calculating contribution, and using contribution to determine the break-even point where total revenues equal total costs. Marginal costing provides information on product and segment profitability without needing to allocate fixed overhead costs.
COMPUTER COMMUNICATION NETWORKS-R-Routing protocols 2Krishna Nanda
The document discusses unicast routing protocols used in the Internet, focusing on the Routing Information Protocol (RIP). It provides details on:
1) How the Internet uses hierarchical routing with interior gateway protocols (IGPs) like RIP within autonomous systems (ASes) and exterior gateway protocols like BGP between ASes.
2) Key aspects of RIP including using hop count as the routing metric, periodic routing updates, timers that control route expiration and garbage collection, and its distance-vector algorithm.
3) RIP's scalability is limited by only allowing up to 15 hops within an AS, but it has simple message formats and local updating between neighboring routers.
This document discusses job costing and batch costing. Job costing involves compiling costs for specific quantities of goods or services produced according to a customer's order. Costs are accumulated separately for each job. Batch costing is used when a company produces goods in batches for stock. The cost per unit is determined by dividing the total batch cost by the number of units in the batch. The document outlines the key features, objectives, advantages, and disadvantages of job costing as well as providing examples of job cost sheets and how to calculate economic batch size.
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
This presentation discusses the application of marginal costing techniques in decision making. It begins by defining marginal costing as the ascertainment of marginal costs and the effect on profit of changes in output volumes or types by differentiating between fixed and variable costs. Only variable costs are assigned to products, while fixed costs are written off against profits. The presentation then provides examples of how marginal costing can be applied to problems like key factor analysis, price fixation, make-or-buy decisions, product mix selection, and more. It also discusses a case study on applying marginal costing to analyze an agro-tourism business model and the impacts of COVID-19 on the tourism industry.
The document discusses the key drivers of supply chain performance - facilities, inventory, transportation, information, sourcing, and pricing. It describes how each driver can impact efficiency versus responsiveness and the trade-offs involved in decisions for each. Components of decisions are outlined for facilities, inventory, transportation, information, sourcing, and pricing. Obstacles to achieving strategic fit with the supply chain are also discussed.
This document defines and provides examples of price discrimination. It discusses that price discrimination means selling the same product at different prices to different buyers. It provides examples of air ticket prices being lower when booked further in advance and movie theaters charging different ticket prices. The document also outlines the main types of price discrimination including by income, product nature, age, time, geography, and product use. It discusses conditions needed for price discrimination, including different demand elasticities among buyer groups and the ability to segment markets.
This document provides an overview of Goods and Services Tax (GST) in India. It begins by defining tax and describing the types of taxes - direct and indirect. It then explains what GST is, how it works, and how it is an improvement over the previous indirect tax system by eliminating cascading taxes and introducing a unified tax rate. The document outlines the tax structure of GST including CGST, SGST, and IGST. It provides an example of how GST is calculated and compares it to the previous system. It also discusses the GST council, rates, and implementation in other countries. Finally, it discusses the advantages of GST like eliminating cascading effect and disadvantages like increased compliance costs.
This presentation covers Accounting of Services and Operations like - Cinema Hall, Canteen, Hospital, Transport, Costing etc.
an important part in MBA Financce
In this presentation, we will discuss in details about cost of production and various concepts of cost like fixed cost, variable cost, average cost, marginal costs, etc.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:
http://www.welingkaronline.org/distance-learning/online-mba.html
Process costing is a method used by manufacturing industries to calculate the cost of production at each stage of converting raw materials into finished goods. It involves allocating total manufacturing costs to products based on normal production levels. Process costing is used in industries like chemicals, textiles, steel, and sugar that involve sequential production processes with continuous flow of goods. The method determines an average cost per equivalent unit and helps control costs, calculate inventory values, and assign product prices at each stage of multiple processes.
The elements of cost include material cost, labor cost, and expenses. Material cost refers to the cost of materials used in production and includes direct material costs which can be traced to a product and indirect material costs which cannot. Labor cost is the cost of employee wages and salaries, including direct labor costs of employees involved in production and indirect labor costs of support staff. Expenses include direct expenses which can be associated with a product and indirect expenses or overheads which cannot, such as factory overhead, administrative overhead, and selling/distribution overhead. Understanding the elements of cost facilitates cost analysis and provides manufacturers with cost information.
This document discusses managing predictable variability in supply chains. It describes how demand for products often changes predictably due to seasonal and other factors. This can cause issues like excess inventory or stockouts. The document outlines two broad categories for handling this variability: managing supply through approaches like adjusting capacity and inventory levels, and managing demand through short-term pricing discounts and promotions. It provides examples of how companies coordinate these supply and demand management strategies across functions and with supply chain partners to maximize profitability while responding to predictable fluctuations in demand.
The document discusses the profit volume (P.V.) ratio, which measures the rate of change in profit from a change in sales volume. The P.V. ratio is used to determine the break-even point, profit at different sales volumes, and sales needed to achieve a target profit. It remains constant as long as unit price and variable costs stay fixed. The P.V. ratio helps with pricing, product analysis, and profit planning. It allows businesses to calculate contribution, variable costs, margin of safety, and profit or loss at any sales level. Maintaining a high P.V. ratio is desirable as it leads to greater profits.
1. The document outlines India's economic development from pre-independence to the present, transitioning from a state-controlled to a more free market economy.
2. It discusses key sectors like agriculture, manufacturing, and services and India's growth in these areas. Major policies and initiatives that impacted development are also mentioned.
3. India has made progress in areas like literacy, health, and reducing poverty but still faces challenges like access to clean water and environmental degradation. The country is moving towards more economic freedom and private sector growth.
The document discusses various aspects of the upcoming Goods and Services Tax (GST) in India such as key details on the GST laws, rules and rates that will be implemented, registration requirements, invoice formats, input tax credit utilization, returns filing, and anti-profiteering measures. It also provides information on GST compliance rating and thresholds for exemption.
The document provides an overview of key accounting concepts including:
1) Business entity concept which treats the business and its owners as separate entities.
2) Money measurement concept which requires transactions be recorded in monetary terms.
3) Going concern concept which assumes a business will continue operating indefinitely.
4) Accounting period concept which requires identifying a specified time period to determine profit.
5) Cost concept which states assets are recorded at historical cost rather than current value.
6) Dual aspect concept which provides that every transaction has two equal and offsetting effects.
The document discusses several key accounting concepts:
1) The business entity concept establishes that a business and its owners are separate entities for accounting purposes. Transactions between the business and its owners are recorded differently than personal transactions.
2) The document outlines several other important accounting concepts, including money measurement, going concern, accounting period, cost, duality, realization, accrual, and matching.
3) The money measurement concept requires that all business transactions be recorded in monetary terms using the local currency. Transactions that cannot be measured in money, like employee loyalty, are not recorded.
This document discusses key concepts in marginal costing such as marginal cost, variable cost, fixed cost, contribution, and absorption costing. It provides examples of how to calculate marginal costs and contribution margins. It also highlights the differences between marginal costing and absorption costing, such as how fixed costs and inventory valuations are treated. Specifically, marginal costing only includes variable costs in inventory and product costing, while absorption costing includes both fixed and variable costs. This allows marginal costing to focus on contribution and profitability.
Advantages and limitations of cost accountingUday Teke
Cost accounting provides several advantages to management, employees, creditors, government, and society. For management, it helps fix responsibility, measure economic performance, set prices, aid decision making, prepare interim accounts, minimize waste, facilitate comparisons, and increase profitability. Employees benefit through better wages, job security, and merit rating. Creditors gain increased confidence and knowledge of business solvency. The government uses cost data for policymaking, taxation, and national planning. Society benefits from cost reduction sharing lower prices, and new employment opportunities. However, cost accounting also has limitations as it can be expensive, complex, not universally applicable, lack precision, and exclude social accounting.
Marginal costing is a technique that differentiates between fixed and variable costs. It assigns only variable costs to cost units and writes off fixed costs for the period against total contribution. Contribution is calculated as sales revenue minus variable costs. Marginal costing is useful for decision making as it shows the effect on profit of changes in volume or product mix. Key aspects include classifying costs, calculating contribution, and using contribution to determine the break-even point where total revenues equal total costs. Marginal costing provides information on product and segment profitability without needing to allocate fixed overhead costs.
COMPUTER COMMUNICATION NETWORKS-R-Routing protocols 2Krishna Nanda
The document discusses unicast routing protocols used in the Internet, focusing on the Routing Information Protocol (RIP). It provides details on:
1) How the Internet uses hierarchical routing with interior gateway protocols (IGPs) like RIP within autonomous systems (ASes) and exterior gateway protocols like BGP between ASes.
2) Key aspects of RIP including using hop count as the routing metric, periodic routing updates, timers that control route expiration and garbage collection, and its distance-vector algorithm.
3) RIP's scalability is limited by only allowing up to 15 hops within an AS, but it has simple message formats and local updating between neighboring routers.
This document discusses job costing and batch costing. Job costing involves compiling costs for specific quantities of goods or services produced according to a customer's order. Costs are accumulated separately for each job. Batch costing is used when a company produces goods in batches for stock. The cost per unit is determined by dividing the total batch cost by the number of units in the batch. The document outlines the key features, objectives, advantages, and disadvantages of job costing as well as providing examples of job cost sheets and how to calculate economic batch size.
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
This presentation discusses the application of marginal costing techniques in decision making. It begins by defining marginal costing as the ascertainment of marginal costs and the effect on profit of changes in output volumes or types by differentiating between fixed and variable costs. Only variable costs are assigned to products, while fixed costs are written off against profits. The presentation then provides examples of how marginal costing can be applied to problems like key factor analysis, price fixation, make-or-buy decisions, product mix selection, and more. It also discusses a case study on applying marginal costing to analyze an agro-tourism business model and the impacts of COVID-19 on the tourism industry.
The document discusses the key drivers of supply chain performance - facilities, inventory, transportation, information, sourcing, and pricing. It describes how each driver can impact efficiency versus responsiveness and the trade-offs involved in decisions for each. Components of decisions are outlined for facilities, inventory, transportation, information, sourcing, and pricing. Obstacles to achieving strategic fit with the supply chain are also discussed.
This document defines and provides examples of price discrimination. It discusses that price discrimination means selling the same product at different prices to different buyers. It provides examples of air ticket prices being lower when booked further in advance and movie theaters charging different ticket prices. The document also outlines the main types of price discrimination including by income, product nature, age, time, geography, and product use. It discusses conditions needed for price discrimination, including different demand elasticities among buyer groups and the ability to segment markets.
This document provides an overview of Goods and Services Tax (GST) in India. It begins by defining tax and describing the types of taxes - direct and indirect. It then explains what GST is, how it works, and how it is an improvement over the previous indirect tax system by eliminating cascading taxes and introducing a unified tax rate. The document outlines the tax structure of GST including CGST, SGST, and IGST. It provides an example of how GST is calculated and compares it to the previous system. It also discusses the GST council, rates, and implementation in other countries. Finally, it discusses the advantages of GST like eliminating cascading effect and disadvantages like increased compliance costs.
This presentation covers Accounting of Services and Operations like - Cinema Hall, Canteen, Hospital, Transport, Costing etc.
an important part in MBA Financce
In this presentation, we will discuss in details about cost of production and various concepts of cost like fixed cost, variable cost, average cost, marginal costs, etc.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:
http://www.welingkaronline.org/distance-learning/online-mba.html
Process costing is a method used by manufacturing industries to calculate the cost of production at each stage of converting raw materials into finished goods. It involves allocating total manufacturing costs to products based on normal production levels. Process costing is used in industries like chemicals, textiles, steel, and sugar that involve sequential production processes with continuous flow of goods. The method determines an average cost per equivalent unit and helps control costs, calculate inventory values, and assign product prices at each stage of multiple processes.
The elements of cost include material cost, labor cost, and expenses. Material cost refers to the cost of materials used in production and includes direct material costs which can be traced to a product and indirect material costs which cannot. Labor cost is the cost of employee wages and salaries, including direct labor costs of employees involved in production and indirect labor costs of support staff. Expenses include direct expenses which can be associated with a product and indirect expenses or overheads which cannot, such as factory overhead, administrative overhead, and selling/distribution overhead. Understanding the elements of cost facilitates cost analysis and provides manufacturers with cost information.
This document discusses managing predictable variability in supply chains. It describes how demand for products often changes predictably due to seasonal and other factors. This can cause issues like excess inventory or stockouts. The document outlines two broad categories for handling this variability: managing supply through approaches like adjusting capacity and inventory levels, and managing demand through short-term pricing discounts and promotions. It provides examples of how companies coordinate these supply and demand management strategies across functions and with supply chain partners to maximize profitability while responding to predictable fluctuations in demand.
The document discusses the profit volume (P.V.) ratio, which measures the rate of change in profit from a change in sales volume. The P.V. ratio is used to determine the break-even point, profit at different sales volumes, and sales needed to achieve a target profit. It remains constant as long as unit price and variable costs stay fixed. The P.V. ratio helps with pricing, product analysis, and profit planning. It allows businesses to calculate contribution, variable costs, margin of safety, and profit or loss at any sales level. Maintaining a high P.V. ratio is desirable as it leads to greater profits.
1. The document outlines India's economic development from pre-independence to the present, transitioning from a state-controlled to a more free market economy.
2. It discusses key sectors like agriculture, manufacturing, and services and India's growth in these areas. Major policies and initiatives that impacted development are also mentioned.
3. India has made progress in areas like literacy, health, and reducing poverty but still faces challenges like access to clean water and environmental degradation. The country is moving towards more economic freedom and private sector growth.
The document discusses various aspects of the upcoming Goods and Services Tax (GST) in India such as key details on the GST laws, rules and rates that will be implemented, registration requirements, invoice formats, input tax credit utilization, returns filing, and anti-profiteering measures. It also provides information on GST compliance rating and thresholds for exemption.
The document provides an overview of key accounting concepts including:
1) Business entity concept which treats the business and its owners as separate entities.
2) Money measurement concept which requires transactions be recorded in monetary terms.
3) Going concern concept which assumes a business will continue operating indefinitely.
4) Accounting period concept which requires identifying a specified time period to determine profit.
5) Cost concept which states assets are recorded at historical cost rather than current value.
6) Dual aspect concept which provides that every transaction has two equal and offsetting effects.
The document discusses several key accounting concepts:
1) The business entity concept establishes that a business and its owners are separate entities for accounting purposes. Transactions between the business and its owners are recorded differently than personal transactions.
2) The document outlines several other important accounting concepts, including money measurement, going concern, accounting period, cost, duality, realization, accrual, and matching.
3) The money measurement concept requires that all business transactions be recorded in monetary terms using the local currency. Transactions that cannot be measured in money, like employee loyalty, are not recorded.
The document provides information on key accounting concepts and the accounting process. It discusses how accounting measures and reports on business transactions and activities in financial terms. The accounting process involves analyzing, recording, classifying, summarizing, and reporting transactions. It also covers the basic accounting equation of assets equaling liabilities plus equity. Several key accounting concepts are defined, including the business entity, realization, accrual, and matching concepts.
This document discusses key accounting concepts and conventions. It explains concepts like business entity, money measurement, going concern, accounting period, cost, dual aspect, matching, realization and accrual. It also covers conventions like consistency, full disclosure, materiality and conservatism. The concepts and conventions establish the fundamental assumptions and guidelines for preparing financial statements according to standard accounting principles.
Accounting Concepts and Conventions.pdf.chalotrav5
The document discusses key accounting concepts and conventions. The concepts include business entity, money measurement, going concern, accounting period, cost, dual aspect, matching, realization and accrual. The conventions discussed are consistency, full disclosure, materiality and conservatism. Accounting concepts define the assumptions used to prepare financial statements, while conventions are common practices followed in recording and presenting accounting information. Key concepts include recording transactions in monetary terms, treating the business as separate from its owners, and recognizing revenue when earned rather than when cash is received.
This document provides an overview of Generally Accepted Accounting Principles (GAAP) and key accounting concepts and conventions. It defines GAAP as the uniform set of standards and procedures for recording and reporting accounting information. Key concepts discussed include the business entity, money measurement, going concern, accounting period, cost, dual aspect, realization, accrual, and matching concepts. Examples are provided to illustrate how each concept is applied to ensure financial statements are reported consistently according to standard accounting guidelines.
This document discusses the theory base of accounting. It explains that accounting requires a sound theoretical foundation consisting of principles, concepts, rules and guidelines to bring uniformity and consistency. The key concepts discussed include:
- Generally Accepted Accounting Principles (GAAP) which are rules adopted to record and report transactions uniformly.
- Basic accounting concepts like business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition and others which form the fundamental assumptions of accounting.
- The need for a consistent theory base is to make accounting information reliable and comparable for internal and external users to take informed decisions.
This document discusses the theory base of accounting. It explains that accounting requires a sound theoretical foundation consisting of principles, concepts, rules and guidelines to bring uniformity and consistency. Generally Accepted Accounting Principles (GAAP) provide rules for recording and reporting transactions to standardize financial statements. The basic accounting concepts discussed include business entity, money measurement, going concern, accounting period, cost, dual aspect, and revenue recognition, which form the foundation of accounting theory.
1. Bookkeeping is the process of recording business transactions in a systematic manner through journals, ledgers, and trial balances. It aims to keep permanent records, determine profits and losses, and know the financial position of the business.
2. Accounting includes classifying, summarizing, and interpreting bookkeeping records to provide useful financial information. It has branches like financial, cost, and management accounting.
3. Key accounting concepts include the business entity, money measurement, cost, matching, dual aspect, realization, and consistency principles.
Accounting concepts andprinciples all important
In financial accounting
Cost accounting
Management accounting
GAAR principles are differernt
Application in economics and accounts corporete accounting
Accounting Principles And Concepts Meaning And Scope Of AccountingApril Knyff
Accounting involves systematically recording, classifying, and summarizing financial transactions and interpreting the results. It has several key functions including keeping records, protecting assets, and communicating financial information. Accounting principles include concepts like the dual aspect concept, going concern concept, and cost concept as well as conventions like disclosure, conservatism, and consistency. Accounting provides limited information and is historical in nature, only considering quantifiable transactions. It has various branches including financial, cost, and management accounting.
This document provides an overview of key accounting concepts and principles. It defines accounting as the process of identifying, measuring and communicating financial information. The main functions of accounting are to keep systematic financial records, protect business assets, and communicate results to interested parties. Key concepts discussed include the dual aspect concept where every transaction has two equal parts, the accounting period concept which determines profit/loss over a set time period, and the going concern concept which assumes a business will continue indefinitely. The document also covers accounting conventions like disclosure, conservatism and consistency.
This document provides an overview of key accounting concepts and conventions used to prepare financial statements. It discusses 10 accounting concepts: [1] entity concept, [2] dual aspect concept, [3] going concern concept, [4] accounting period concept, [5] money measurement concept, [6] cost concept, [7] revenue realization concept, [8] matching concept, [9] verifiable objective evidence concept, and [10] accrual concept. It also briefly explains 7 accounting conventions including entity concept, dual aspect concept, going concern concept, accounting period concept, money measurement concept, cost concept, and revenue realization concept. The document is intended to outline the basic principles and rules of accounting.
This document discusses key accounting concepts and conventions. It explains the separate entity, money measurement, going concern, accounting period, accounting cost, matching, dual aspect, realization, conservatism, full disclosure, consistency, and materiality concepts/conventions. These concepts and conventions provide the basic assumptions and guidelines for preparing financial statements according to accounting principles.
This document discusses key accounting concepts and conventions. It describes the business entity, money measurement, going concern, accounting period, cost, matching, dual aspect, realization, conservatism, full disclosure, consistency, and materiality concepts. These concepts provide the basic assumptions and guidelines for preparing financial statements according to standard accounting principles.
Accounting involves recording, classifying, and summarizing financial transactions and events in terms of money. It has the objectives of providing information for decision-making, external reporting, and statutory compliance. Some key principles of accounting include the business entity assumption, cost principle, dual aspect concept, and matching principle. Accounting follows conventions like conservatism, consistency, and full disclosure. Financial statements are prepared according to generally accepted accounting principles using either a single-entry or double-entry bookkeeping system.
This document provides an overview of accounting concepts and principles. It defines accounting as the language of business that measures and communicates financial information. Accounting fulfills the need for managers and investors to understand a business's performance and financial position through financial statements. The document outlines key accounting concepts like the business entity, money measurement, and cost concepts. It also describes accounting conventions like consistency, disclosure, and conservation. Finally, it discusses the accounting cycle and classification of accounts into personal, real, and nominal categories with rules for debit and credit entries.
This document outlines the syllabus for the Financial Accounting course for the 1st year of a B.Com degree. The syllabus covers key accounting concepts like the double-entry system, accounting standards, and preparation of final accounts. It also covers topics like partnership accounts, joint venture accounts, and accounting for non-profit organizations. The syllabus is divided into 5 units that will cover fundamental accounting principles, journals, ledgers, adjustments to accounts, branch accounts, and partnership accounts.
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Accounting concepts
1. MODULE - 1
Basic Accounting
Notes
17
Accounting Concepts
ACCOUNTANCY
In the previous lesson, you have studied the meaning and nature of business
transactions and objectives of financial accounting. In order to maintain
uniformity and consistency in preparing and maintaining books of accounts,
certain rules or principles have been evolved. These rules/principles are
classified as concepts and conventions. These are foundations of preparing
and maintaining accounting records. In this lesson we shall learn about
various accounting concepts, their meaning and significance.
OBJECTIVES
After studying this lesson, you will be able to :
explain the term accounting concept;
explain the meaning and significance of various accounting concepts
: Business Entity, Money Measurement, Going Concern, Accounting
Period, Cost Concept, Duality Aspect concept, Realisation Concept,
Accrual Concept and Matching Concept.
2.1 MEANING AND BUSINESS ENTITY CONCEPT
Let us take an example. In India there is a basic rule to be followed by
everyone that one should walk or drive on his/her left hand side of the road.
It helps in the smooth flow of traffic. Similarly, there are certain rules that
an accountant should follow while recording business transactions and
preparing accounts. These may be termed as accounting concept. Thus, this
can be said that :
Accounting concept refers to the basic assumptions and rules and
principles which work as the basis of recording of business transactions
and preparing accounts.
2
ACCOUNTING CONCEPTS
2. ACCOUNTANCY
MODULE - 1
Notes
Accounting Concepts
Basic Accounting
18
The main objective is to maintain uniformity and consistency in accounting
records. These concepts constitute the very basis of accounting. All the
concepts have been developed over the years from experience and thus they
are universally accepted rules. Following are the various accounting
concepts that have been discussed in the following sections :
Business entity concept
Money measurement concept
Going concern concept
Accounting period concept
Accounting cost concept
Duality aspect concept
Realisation concept
Accrual concept
Matching concept
Business entity concept
This concept assumes that, for accounting purposes, the business enterprise
and its owners are two separate independent entities. Thus, the business and
personal transactions of its owner are separate. For example, when the
owner invests money in the business, it is recorded as liability of the
business to the owner. Similarly, when the owner takes away from the
business cash/goods for his/her personal use, it is not treated as business
expense. Thus, the accounting records are made in the books of accounts
from the point of view of the business unit and not the person owning the
business. This concept is the very basis of accounting.
Let us take an example. Suppose Mr. Sahoo started business investing
Rs100000. He purchased goods for Rs40000, Furniture for Rs20000 and
plant and machinery of Rs30000. Rs10000 remains in hand. These are the
assets of the business and not of the owner. According to the business entity
concept Rs100000 will be treated by business as capital i.e. a liability of
business towards the owner of the business.
Now suppose, he takes away Rs5000 cash or goods worth Rs5000 for his
domestic purposes. This withdrawal of cash/goods by the owner from the
3. MODULE - 1
Basic Accounting
Notes
19
Accounting Concepts
ACCOUNTANCY
business is his private expense and not an expense of the business. It is
termed as Drawings. Thus, the business entity concept states that business
and the owner are two separate/distinct persons. Accordingly, any expenses
incurred by owner for himself or his family from business will be considered
as expenses and it will be shown as drawings.
Significance
The following points highlight the significance of business entity concept :
This concept helps in ascertaining the profit of the business as only the
business expenses and revenues are recorded and all the private and
personal expenses are ignored.
This concept restraints accountants from recording of owner’s private/
personal transactions.
It also facilitates the recording and reporting of business transactions
from the business point of view
It is the very basis of accounting concepts, conventions and principles.
INTEXT QUESTIONS 2.1
Fill in the blanks with suitable word/words
(i) The accounting concepts are basic ....................... of accounting.
(ii) The main objective of accounting concepts is to maintain .......................
and ....................... in the accounting record.
(iii) ....................... concept assumes that business enterprise and its owners
are two separate independent entities.
(iv) The goods drawn from business for owner’s personal use are called
.......................
2.2 MONEY MEASUREMENT CONCEPT
This concept assumes that all business transactions must be in terms of
money, that is in the currency of a country. In our country such transactions
are in terms of rupees.
Thus, as per the money measurement concept, transactions which can be
expressed in terms of money are recorded in the books of accounts. For
example, sale of goods worth Rs.200000, purchase of raw materials
4. ACCOUNTANCY
MODULE - 1
Notes
Accounting Concepts
Basic Accounting
20
Rs.100000, Rent Paid Rs.10000 etc. are expressed in terms of money, and
so they are recorded in the books of accounts. But the transactions which
cannot be expressed in monetary terms are not recorded in the books of
accounts. For example, sincerity, loyality, honesty of employees are not
recorded in books of accounts because these cannot be measured in terms
of money although they do affect the profits and losses of the business
concern.
Another aspect of this concept is that the records of the transactions are
to be kept not in the physical units but in the monetary unit. For example,
at the end of the year 2006, an organisation may have a factory on a piece
of land measuring 10 acres, office building containing 50 rooms, 50
personal computers, 50 office chairs and tables, 100 kg of raw materials
etc. These are expressed in different units. But for accounting purposes they
are to be recorded in money terms i.e. in rupees. In this case, the cost of
factory land may be say Rs.12 crore, office building of Rs.10 crore,
computers Rs.10 lakhs, office chairs and tables Rs.2 lakhs, raw material
Rs.30 lakhs. Thus, the total assets of the organisation are valued at Rs.22
crore and Rs.42 lakhs. Therefore, the transactions which can be expressed
in terms of money is recorded in the accounts books, that too in terms of
money and not in terms of the quantity.
Significance
The following points highlight the significance of money measurement
concept :
This concept guides accountants what to record and what not to record.
It helps in recording business transactions uniformly.
If all the business transactions are expressed in monetary terms, it will
be easy to understand the accounts prepared by the business enterprise.
It facilitates comparison of business performance of two different
periods of the same firm or of the two different firms for the same
period.
INTEXT QUESTIONS 2.2
Put a tick mark (√) against the information that should be recorded in the
books of accounts and cross mark (×) against the information that should
not be recorded
(i) Health of a managing director
(ii) Purchase of factory building Rs.10 crore
5. MODULE - 1
Basic Accounting
Notes
21
Accounting Concepts
ACCOUNTANCY
(iii) Rent paid Rs.100000
(iv) Goods worth Rs.10000 given as charity
(v) Delay in supply of raw materials
2.3 GOING CONCERN CONCEPT
This concept states that a business firm will continue to carry on its activities
for an indefinite period of time. Simply stated, it means that every business
entity has continuity of life. Thus, it will not be dissolved in the near future.
This is an important assumption of accounting, as it provides a basis for
showing the value of assets in the balance sheet; For example, a company
purchases a plant and machinery of Rs.100000 and its life span is 10 years.
According to this concept every year some amount will be shown as
expenses and the balance amount as an asset. Thus, if an amount is spent
on an item which will be used in business for many years, it will not be
proper to charge the amount from the revenues of the year in which the
item is acquired. Only a part of the value is shown as expense in the year
of purchase and the remaining balance is shown as an asset.
Significance
The following points highlight the significance of going concern concept;
This concept facilitates preparation of financial statements.
On the basis of this concept, depreciation is charged on the fixed asset.
It is of great help to the investors, because, it assures them that they
will continue to get income on their investments.
In the absence of this concept, the cost of a fixed asset will be treated
as an expense in the year of its purchase.
A business is judged for its capacity to earn profits in future.
INTEXT QUESTIONS 2.3
Fill in the blanks by selecting correct words given in the bracket/brackets:
(i) Going concern concept states that every business firm will continue
to carry on its activities …………….. (for a definite time period, for
an indefinite time period)
6. ACCOUNTANCY
MODULE - 1
Notes
Accounting Concepts
Basic Accounting
22
(ii) Fixed assets are shown in the books at their …………….. (cost price,
market price)
(iii) The concept that a business enterprise will not be closed down in the
near future is known as …………….. (going concern concept, money
measurement concept)
(iv) On the basis of going concern concept, a business prepares its
.......................... (financial statements, bank statement, cash statement)
(v) ........................... concept states that business will not be dissolved in
near future. (Going concern, Business entity)
2.4 ACCOUNTING PERIOD CONCEPT
All the transactions are recorded in the books of accounts on the assumption
that profits on these transactions are to be ascertained for a specified period.
This is known as accounting period concept. Thus, this concept requires
that a balance sheet and profit and loss account should be prepared at regular
intervals. This is necessary for different purposes like, calculation of profit,
ascertaining financical position, tax computation etc.
Further, this concept assumes that, indefinite life of business is divided into
parts. These parts are known as Accounting Period. It may be of one year,
six months, three months, one month, etc. But usually one year is taken as
one accounting period which may be a calender year or a financial year.
Year that begins from 1st of January and ends on 31st of December,
is known as Calendar Year. The year that begins from 1st of April and
ends on 31st of March of the following year, is known as financial
year.
As per accounting period concept, all the transactions are recorded in the
books of accounts for a specified period of time. Hence, goods purchased
and sold during the period, rent, salaries etc. paid for the period are
accounted for and against that period only.
Significance
It helps in predicting the future prospects of the business.
It helps in calculating tax on business income calculated for a particular
time period.
It also helps banks, financial institutions, creditors, etc to assess and
analyse the performance of business for a particular period.
It also helps the business firms to distribute their income at regular
intervals as dividends.
7. MODULE - 1
Basic Accounting
Notes
23
Accounting Concepts
ACCOUNTANCY
INTEXT QUESTIONS 2.4
Fill in the blanks with suitable word/words.
(i) Recording of transactions in the books of accounts with a definite
period is called ………………. concept.
(ii) The commonly accepted accounting period in India is ……………….
(iii) According to accounting period concept, revenue and expenses are
related to a ………………. period.
(iv) If accounting year begins from 1st of January, and ends on 31st of
December, it is known as ……………….
(v) If accounting year begins from 1st of April and ends on 31st of March,
then accounting year is known as ……………….
2.5 ACCOUNTING COST CONCEPT
Accounting cost concept states that all assets are recorded in the books of
accounts at their purchase price, which includes cost of acquisition,
transportation and installation and not at its market price. It means that fixed
assets like building, plant and machinery, furniture, etc are recorded in the
books of accounts at a price paid for them. For example, a machine was
purchased by XYZ Limited for Rs.500000, for manufacturing shoes. An
amount of Rs.1,000 were spent on transporting the machine to the factory
site. In addition, Rs.2000 were spent on its installation. The total amount
at which the machine will be recorded in the books of accounts would be
the sum of all these items i.e. Rs.503000. This cost is also known as
historical cost. Suppose the market price of the same is now Rs 90000 it
will not be shown at this value. Further, it may be clarified that cost means
original or acquisition cost only for new assets and for the used ones, cost
means original cost less depreciation. The cost concept is also known as
historical cost concept. The effect of cost concept is that if the business
entity does not pay anything for acquiring an asset this item would not
appear in the books of accounts. Thus, goodwill appears in the accounts
only if the entity has purchased this intangible asset for a price.
Significance
This concept requires asset to be shown at the price it has been acquired,
which can be verified from the supporting documents.
It helps in calculating depreciation on fixed assets.
The effect of cost concept is that if the business entity does not pay
anything for an asset, this item will not be shown in the books of
accounts.
8. ACCOUNTANCY
MODULE - 1
Notes
Accounting Concepts
Basic Accounting
24
INTEXT QUESTIONS 2.5
Fill in the blanks with suitable word/words
(i) The cost concept states that all fixed assets are recorded in the books
of accounts at their …………. price.
(ii) The main objective to adopt historical cost in recording the fixed assets
is that the cost of the assets will be easily verifiable from the ………….
documents.
(iii) The cost concept does not show the …………. of the business.
(iv) The cost concept is otherwise known as …………. concept.
2.6 DUAL ASPECT CONCEPT
Dual aspect is the foundation or basic principle of accounting. It provides
the very basis of recording business transactions in the books of accounts.
This concept assumes that every transaction has a dual effect, i.e. it affects
two accounts in their respective opposite sides. Therefore, the transaction
should be recorded at two places. It means, both the aspects of the
transaction must be recorded in the books of accounts. For example, goods
purchased for cash has two aspects which are (i) Giving of cash
(ii) Receiving of goods. These two aspects are to be recorded.
Thus, the duality concept is commonly expressed in terms of fundamental
accounting equation :
Assets = Liabilities + Capital
The above accounting equation states that the assets of a business are always
equal to the claims of owner/owners and the outsiders. This claim is also
termed as capital or owners equity and that of outsiders, as liabilities or
creditors’ equity.
The knowledge of dual aspect helps in identifying the two aspects of a
transaction which helps in applying the rules of recording the transactions
in books of accounts. The implication of dual aspect concept is that every
transaction has an equal impact on assets and liabilities in such a way that
total assets are always equal to total liabilities.
Let us analyse some more business transactions in terms of their dual aspect :
1. Capital brought in by the owner of the business
The two aspects in this transaction are :
(i) Receipt of cash
(ii) Increase in Capital (owners equity)
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2. Purchase of machinery by cheque
The two aspects in the transaction are
(i) Reduction in Bank Balance
(ii) Owning of Machinery
3. Goods sold for cash
The two aspects are
(i) Receipt of cash
(ii) Delivery of goods to the customer
4. Rent paid in cash to the landlord
The two aspects are
(i) Payment of cash
(ii) Rent (Expenses incurred).
Once the two aspects of a transaction are known, it becomes easy to apply
the rules of accounting and maintain the records in the books of accounts
properly.
The interpretation of the Dual aspect concept is that every transaction has
an equal effect on assets and liabilities in such a way that total assets are
always equal to total liabilities of the business.
Significance
This concept helps accountant in detecting error.
It encourages the accountant to post each entry in opposite sides of two
affected accounts.
INTEXT QUESTIONS 2.6
Write the two aspects (effects) of the following transactions.
S.No. Transaction Ist aspect IInd aspect
(i) Owner brings cash in business
(ii) Goods purchased for cash
(iii) Goods sold for cash
(iv) Furniture purchased for cash
(v) Received cash from Sharma
(vi) Purchased machine from
Rama on credit
(vii) Paid to Ram
(viii) Salaries Paid
(ix) Rent Paid
(x) Rent Received
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2.7 REALISATION CONCEPT
This concept states that revenue from any business transaction should be
included in the accounting records only when it is realised. The term
realisation means creation of legal right to receive money. Selling goods
is realisation, receiving order is not.
In other words, it can be said that :
Revenue is said to have been realised when cash has been received
or right to receive cash on the sale of goods or services or both has
been created.
Let us study the following examples :
(i) N.P. Jeweller received an order to supply gold ornaments worth
Rs.500000. They supplied ornaments worth Rs.200000 up to the year
ending 31st December 2005 and rest of the ornaments were supplied
in January 2006.
(ii) Bansal sold goods for Rs.1,00,000 for cash in 2006 and the goods have
been delivered during the same year.
(iii) Akshay sold goods on credit for Rs.50,000 during the year ending 31st
December 2005. The goods have been delivered in 2005 but the
payment was received in March 2006.
Now, let us analyse the above examples to ascertain the correct amount of
revenue realised for the year ending 31st December 2005.
(i) The revenue for the year 2005 for N.P. Jeweller is Rs.200000. Mere
getting an order is not considered as revenue until the goods have been
delivered.
(ii) The revenue for Bansal for year 2005 is Rs.1,00,000 as the goods have
been delivered in the year 2005. Cash has also been received in the
same year.
(iii) Akshay’s revenue for the year 2005 is Rs.50,000, because the goods
have been delivered to the customer in the year 2005. Revenue became
due in the year 2005 itself. In the above examples, revenue is realised
when the goods are delivered to the customers.
The concept of realisation states that revenue is realized at the time
when goods or services are actually delivered.
In short, the realisation occurs when the goods and services have been sold
either for cash or on credit. It also refers to inflow of assets in the form
of receivables.
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Significance
It helps in making the accounting information more objective.
It provides that the transactions should be recorded only when goods
are delivered to the buyer.
INTEXT QUESTIONS 2.7
Ascertain the amount of current revenue realized for the year ending 31st
December 2006
(i) An order, to supply goods for Rs.20,00,000 is received in the year 2006.
The goods have been supplied only for Rs.10,00,000 in 2006.
(ii) What will be the revenue (i) if the payment of Rs.6,00,000 is received
in cash in 2006 and the balance payment of Rs.4,00,000 received in
2007.
(iii) What will be the revenue if the goods have been sold on credit and
the payment of Rs.1500000 is received in the year 2007, while all the
goods of Rs.20,00,000 are supplied in the year 2006.
(iv) What will be the revenue if an advance payment of Rs.100,000 is
received in the year 2006 and the balance received in the year 2007.
2.8 ACCRUAL CONCEPT
The meaning of accrual is something that becomes due especially an amount
of money that is yet to be paid or received at the end of the accounting
period. It means that revenues are recognised when they become receivable.
Though cash is received or not received and the expenses are recognised
when they become payable though cash is paid or not paid. Both transactions
will be recorded in the accounting period to which they relate. Therefore,
the accrual concept makes a distinction between the accrual receipt of cash
and the right to receive cash as regards revenue and actual payment of cash
and obligation to pay cash as regards expenses.
The accrual concept under accounting assumes that revenue is realised at
the time of sale of goods or services irrespective of the fact when the cash
is received. For example, a firm sells goods for Rs 55000 on 25th March
2005 and the payment is not received until 10th April 2005, the amount
is due and payable to the firm on the date of sale i.e. 25th March 2005.
It must be included in the revenue for the year ending 31st March 2005.
Similarly, expenses are recognised at the time services provided, irrespective
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of the fact when actual payment for these services are made. For example,
if the firm received goods costing Rs.20000 on 29th March 2005 but the
payment is made on 2nd April 2005 the accrual concept requires that
expenses must be recorded for the year ending 31st March 2005 although
no payment has been made until 31st March 2005 though the service has
been received and the person to whom the payment should have been made
is shown as creditor.
In brief, accrual concept requires that revenue is recognised when realised
and expenses are recognised when they become due and payable without
regard to the time of cash receipt or cash payment.
Significance
It helps in knowing actual expenses and actual income during a
particular time period.
It helps in calculating the net profit of the business.
INTEXT QUESTIONS 2.8
Fill in the blanks with suitable word/words :
(i) Accrual concept relates to the determination of ...................
(ii) Goods of Rs.50000 are sold on 25th March 2006 but payment is
received on 10th April 2006. It will be a revenue for the year
ending ....................
(iii) Accrual concept requires revenue is recognised when ...................
and expenses are recognised when they become ...................
2.9 MATCHING CONCEPT
The matching concept states that the revenue and the expenses incurred to
earn the revenues must belong to the same accounting period. So once the
revenue is realised, the next step is to allocate it to the relevant accounting
period. This can be done with the help of accrual concept.
Let us study the following transactions of a business during the month of
December, 2006
(i) Sale : cash Rs.2000 and credit Rs.1000
(ii) Salaries Paid Rs.350
(iii) Commission Paid Rs.150
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(iv) Interest Received Rs.50
(v) Rent received Rs.140, out of which Rs.40 received for the year 2007
(vi) Carriage paid Rs.20
(vii) Postage Rs.30
(viii) Rent paid Rs.200, out of which Rs.50 belong to the year 2005
(ix) Goods purchased in the year for cash Rs.1500 and on credit Rs.500
(x) Depreciation on machine Rs.200
Let us record the above transactions under the heading of Expenses and
Revenue.
Expenses Amount Revenue Amount
Rs Rs
1. Salaries 350 1. Sales
2. Commission 150 Cash 2000
3. Carriage 20 Credit 1000 3000
4. Postage 30 2. Interest received 50
5. Rent paid 200 3. Rent received 140
Less for 2005 (50) 150 Less for 2007 (40) 100
6. Goods purchased
Cash 1500
Credit 500 2000
7. Depreciation on machine 200
Total 2900 Total 3150
In the above example expenses have been matched with revenue i.e
(Revenue Rs.3150-Expenses Rs.2900) This comparison has resulted in
profit of Rs.250. If the revenue is more than the expenses, it is called profit.
If the expenses are more than revenue it is called loss. This is what exactly
has been done by applying the matching concept.
Therefore, the matching concept implies that all revenues earned during an
accounting year, whether received/not received during that year and all cost
incurred, whether paid/not paid during the year should be taken into account
while ascertaining profit or loss for that year.
Significance
It guides how the expenses should be matched with revenue for
determining exact profit or loss for a particular period.
It is very helpful for the investors/shareholders to know the exact
amount of profit or loss of the business.
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INTEXT QUESTIONS 2.9
Fill in the blanks with suitable word/words :
(i) Expenses are matched with ……....……. generated during a period.
(ii) Goods sold for cash is an example of ……....…….
(iii) Salaries paid is an example of ……....…….
(iv) Income is the excess of ……....……. over ……....…….
(v) ……....……. concept states that the revenue and the expenses
incurred to earn the revenue must belong to the same accounting
period
(vi) ……....……. concept states how the expenses should be compared
with revenues for ascertaining exact profit or loss for a particular
period
WHAT YOU HAVE LEARNT
Accounting concept refers to the basic assumptions which serve the
basis of recording actual business transactions.
The important accounting concepts are business entity, money
measurement, going concern, accounting period, cost concept, duality
aspect concept, realisation concept, accrual concept, and matching
concept.
Business entity concept assumes that for accounting purposes, the
business enterprise and its owner(s) are two separate entities.
Money measurement concept assumes that all business transactions
must be recorded in the books of accounts in terms of money.
Going concern concept states that a business firm will continue to carry
on activities for an indefinite period of time.
Accounting period concept states that all the business transactions are
recorded in the books of accounts on the assumption that profits of
transactions is to be ascertained for a specified time period.
Accounting cost concept states that all assets are recorded in the books
of accounts at their cost price.
Dual aspect concept states that every transaction has a dual effect.
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Realisation concept states that revenue from any business transaction
should be included in the accounting records only when it is realised
Matching concept states that the revenue and the expenses incurred to
earn the revenue must belong to the same accounting period
TERMINAL QUESTIONS
1. Explain meaning and significance of going concern concept.
2. What do you mean by business entity concept?
3. State meaning and significance of money measurement concept.
4. Write short notes on the following
(a) Cost concept
(b) Accrual concept
(c) Matching concept
(d) Accounting period concept
5. What do you mean by accounting concept? Explain any four accounting
concepts.
ANSWERS TO INTEXT QUESTIONS
Intext Questions 2.1
(i) rules (ii) uniformity and consistency
(iii) Business entity concept (iv) drawings
Intext Question 2.2
(i) × (ii) √ (iii) √ (iv) √ (v) ×
Intext Question 2.3
(i) for an indefinite time period (ii) cost price
(iii) going concern concept (iv) financial statements
(v) Going concern
Intext Question 2.4
(i) accounting period (ii) one year
(iii) particular (iv) calender year
(v) financial year
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Intext Question 2.5
(i) purchase (ii) supporting
(iii) true net worth (iv) historical cost
Intext Question 2.6
(i) Owner’s capital, cash (ii) Goods received, cash
(iii) Cash received, goods sold (iv) Furniture, cash
(v) Cash, Sharma (vi) Machine, Rama
(vii) Ram, cash (viii) Salaries, cash
(ix) Rent, cash (x) Cash, rent
Intext Question 2.7
(i) Rs.10,00,000 (ii) Rs.10,00000
(iii) Rs.20,00000 (iv) Rs.1,00,000
Intext Question 2.8
(i) income (ii) 31st March, 2006 (iii) realised, due
Intext Question 2.9
(i) revenue (ii) revenue
(iii) expense (iv) revenue, expenses
(v) matching (vi) matching
Activity
In our country business concerns are not following the same accounting
period every year. Enquire from various sources and list various such
periods prevailing in our country. One for example is given
1. Year ending 31st March (financial year)
2. ................................................................................................................
3. ................................................................................................................
4. ................................................................................................................
5. ................................................................................................................