The document outlines accounting principles divided into concepts and conventions. Key accounting concepts include the business entity concept, money measurement, and the matching concept, while accounting conventions focus on consistency, full disclosure, and conservatism. These principles guide the preparation of financial statements and ensure accurate representation of a business's financial position.

1. Dr. Anu Gupta

2. Accounting principles can be subdivided into
two categories:
 Accounting Concepts; and
 Accounting Conventions.

3.  Accounting Concepts
 Accounting Conventions
The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which
accounting is based.
The term ‘convention’ is used to signify
customs and traditions as a guide to the
presentation of accounting statements.

4. Accounting Concepts
1. Business Entity Concept
2. Money Measurement Concept
3. Cost Concept
4. Going Concern Concept
5. Dual Aspect Concept
6. Realization Concept
7. Accounting Period Concept
8. Accrual Concept
9. Matching Concept

5. Accounting Conventions
1. Convention of Consistency
2. Convention of Full Disclosure
3. Convention of Materiality
4. Convention of Conservatism or Prudence

6. Accounting Concepts
The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which
accounting is based.

7. Business is treated as a separate entity or
unit apart from its owner and others. All
the transactions of the business are
recorded in the books of business from
the point of view of the business as an
entity and even the owner is treated as a
creditor to the extent of his/her capital.

8. In accounting, we record only those
transactions which are expressed in
terms of money. In other words, a fact
which can not be expressed in monetary
terms, is not recorded in the books of
accounts.

9. In accounting, life of the business is perpetual
but still it has to report the results of activity
undertaken in one year. So final accounts are
prepared for the accounting period which is 12
months period and normally it is the Financial
Year ( 1st
April to 31st
March).

10. Transactions are entered in the books of
accounts at the amount actually involved.
E.g.- A company purchases a car for
Rs.1,50,000/- the real value of which is
Rs.2,00,000/-, the purchase will be recorded as
Rs.1,50,000/- and not any more. This is one of
the most important concept and it prevents
arbitrary values being put on transactions.

11. It is persuaded that the business will
exists for a long time and transactions
are recorded from this point of view. The
entity is assumed to remain in operation
sufficiently long to carry out its objects
and plans.

12. Each transaction has two aspects, that is,
the receiving benefit by one party and the
giving benefit by the other. This principle
is the core of accountancy.

13. For example, the proprietor of a business
starts his business with Cash
Rs.1,00,000/-, Machinery of Rs.50,000/-
and Building of Rs.30,000/-, then this fact
is recorded at two places. That is Assets
account (Cash, Machinery & Building) and
Capital accounts. The capital of the
business is equal to the assets of the
business.

14. Thus, the dual aspect can be expressed
as under
Capital + Liabilities = Assets
or
Capital = Assets – Liabilities

15. This concept emphasizes that profits
should be considered only when
realized . Accounting should take into
consideration profits only when the same
have been realized.

16. Matching concept requires that expenses
should be matched to the revenues of the
appropriate accounting period. So we
must determine the revenue earned
during a particular accounting period and
the expenses incurred to earn those
revenues.

17. Accrual is concerned with expected future
cash receipts and payments : Accounting
attempts to recognize non-cash events
and circumstances as they occur.
Examples are – purchase and sales of
goods on credit ,wages and salaries
outstanding.

18. Accounting Conventions
The term ‘convention’ is used to signify
customs and traditions as a guide to the
presentation of accounting statements.

19. In order to enable the management to
draw important conclusions regarding
the working of the company over a few
years, it is essential that accounting
practices and methods remain
unchanged from one accounting period
to another. The comparison of one
accounting period with that of another is
possible only when the convention of

20. This principle implies that accounts must
be honestly prepared and all material
information must be disclosed therein.
The contents of Balance Sheet and Profit
and Loss Account are prescribed by law.
These are designed to make disclosure of
all material facts compulsory.

21. Financial statements are always drawn up
on rather a conservative basis. That is,
showing a position better than what it is,
not permitted. It is also not proper to
show a position worse than what it is. In
other words, secret reserves are not
permitted.