This document provides an overview of accounting theory and practices. It discusses key accounting concepts such as principles, elements, and doctrines. It also describes accounting systems, the accounting cycle, branches of accounting, and accounting standards authorities. The main topics covered include the definition of accounting, accounting elements like assets and liabilities, concepts like separate entity and matching principles, and the basic accounting equation.

1. Accounting Theory &
Practices
Accounting Principles, System
Accounting Elements, Concepts
Accounting Doctrines & Basis
FRS – Key Users, Purposes

2. Accounting Theory & Practices
●Accounting principles, systems
● An ancient art, certainly as old as money
● Accounting is an art of recording, classifying
and summarizing in a significant manner and
in terms of money, transactions and events that
are, in part at least, of a financial character and
interpreting the results thereof
● Process of identifying, measuring and
communicating information to permit
judgment

3. Accounting Theory & Practices
●Accounting elements
● Assets – a resource – future benefits flow
● Liability – obligation arising from past events
● Fund – an accounting entity
● Income – increase in economic benefits during
the accounting year
● Expenditure – decreases of benefits

4. Accounting Theory & Practices
●Accounting concepts
● Separate entity concept – independent from owner
● Going concern concept – no intention or necessity to
sell business in foreseeable future
● Assets are not taken at forced sale value of assets
● Depreciation is charged on expected life basis
● charge the cost of fixed assets over their useful lives against
income
● repay over an appropriate period other costs which have been
deferred under the accrual or matching concept
● pay liabilities when they become due, and
● meet contractual commitments

5. Accounting Theory & Practices
● Money measurement concept
● Cost concept
● asset to be recorded at its purchase cost and to be reduced in
its value by charging depreciation.
● Dual aspect concept – accounting equation
● Accounting period concept
● business is considered indefinite but to be analysed in
appropriate time segment
● Periodic matching of costs and revenues
● Realization concept – revenue is recognised when sale
is made

6. Accounting Theory & Practices
●Doctrines :
● Consistency
● Vertical, horizontal, third dimensional
● Disclosure- all material facts
● Conservatism – understatement of income and
assets while overstatement of expenditure and
liability
● Materiality – significant matters to have
detailed accounting than insignificant matters

7. Accounting Theory & Practices
●Basis of accounting
● Cash – basis of accounting - flow of
current financial resources
● When cash is received or paid
● Modified accrual basis of accounting -
flow of total financial resources
● revenues are recorded in the period in which they
are measurable and available.

8. Accounting Theory & Practices
●Accrual basis of accounting - flow of
economic resources
● revenue is recognized as it is earned
● costs are matched either against revenues so
recognized or against the relevant time period to
determine periodic income
● costs that are not charged to income are carried
forward and are kept under continuous review, and
● any cost that appears to have lost its utility or power to
generate future revenue is written-off as a loss.

9. Accounting Theory & Practices
●Accounting systems
● Single entry accounting system-
● A system of bookkeeping which as a rule records
of cash and personal accounts are maintained
● Double entry accounting system-
● Based on a principle that each transaction has dual
aspects and both aspects should be recorded
● Self-balancing, systematic, transparent
● Overcomes shortcomings of single entry system

10. Accounting Theory & Practices
●Accounting equation approach
● At any point of time resource = claims
● Equities = Assets
● E (capital + liabilities) = A(cash+bank+assets)
● Assets = L + ( C + (R-E))
● Capital = assets – liabilities

11. Accounting Theory & Practices
●Basic Accounting Rules
● Debit the receiver and credit the giver
● Debit what comes in and credit what goes out
● Debit all expenses (losses) and credit all
incomes (gains)
● Assets – increase is debit, decrease is credit
● Liabilities–increase is credit, decrease is debit
● Expense – increase is debit, decrease is credit
● Income – increase is credit, decrease is debit

12. Accounting Theory & Practices
●A debit denotes in case of -
● A Person – has received benefits from firm
against which he has rendered service or will
have to render something in future
● The goods or properties – the stock or assets
and value of which has increased
● The other accounts – incurrence of expense or
loss of money by the firm.

13. Accounting Theory & Practices
●A credit denotes in case of –
● A person – has provided something to firms
and has become entitle for return benefit
● The goods and properties – the stock and value
of such goods and properties has diminished
● The other accounts – the firm has gained or
received income.

14. Accounting Theory & Practices
Owners / Municipal
Body’s Investment or
creation of assets
Current
period
revenue
Withdrawals by
Owners / Municipal
Body Sale of Assets
Current
period
expenses
Inflows Out-flows

15. Accounting Theory & Practices
●Primary accounting documents
● Receipts
● Payment vouchers
● Fund Transfer Vouchers
● Journal Vouchers
●Primary Books of Accounts
● Cash Book
● Bank Book
● Journal Book
●Ledgers
●Trial Balance
●Financial Statements

16. Accounting Cycle
Transaction
Journal Entry
General Ledger
Trial Balance
Financial
Statements

17. Accounting Cycle
Identify the
Transaction
Analyse the
Transaction
Post to Ledger
Prepare a Trial
Balance
Prepare adjusted
Entries
Journal Entry
Repeat Steps till accounting cycle
is completed
Prepare adjusted
Trial Balance
Prepare Financial
Statements
Prepare a Closing
Entries
Prepare after
closing Trial
Balance

18. Accounting Theory & Practices
●Branches of Accounting
● Financial Accounting – developed originally,
financial state of affairs, results of operations
● Cost Accounting – FA suffers from lack of
cost information for deci. making, estimating
costs in advance & detailed analysis
● Management Accounting – Newly developing,
developed to enable management for
forecasting, budgeting, cost control, revenue
decisions both strategic and routine.

19. Accounting Standards/ Authorities
● International
● International Accounts Standards (IAS)
● United States
● Financial Accounting Standards Board
(FASB)
● Governmental Accounting Standards Board
(GASB)
● Europe
● European Directive
● Support for Improvement in Governance and
Management Central and Eastern Europe
Countries (SIGMA)

20. Accounting Theory -
Introduction
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