The document outlines 12 generally accepted accounting principles (GAAP) that are universally followed in accounting. These principles include: 1) money measurement, 2) separate entity, 3) duality, 4) going concern, 5) cost, 6) accounting period, 7) conservation, 8) realization, 9) accrual, 10) matching, 11) consistency, and 12) materiality. The principles provide guidelines for recording transactions, valuing assets and liabilities, preparing financial statements, and ensuring accuracy and consistency over time.

1. Generally Accepted
Principles of
Accounting

2. GAAP
 In the profession of accounting there are
certain principles that are universally
followed.
 These are known as GAAP (Generally
Accepted Accounting Principles)

3. 1.) Money Measurement
Concept
 Only those transactions are recorded which can be
expressed in monitory terms.
 Following are not recorded:
 Emergence of a new product in market.
 Demise of CEO
 Low moral of Workers
 All items are expressed at monitory values at the
time they take place.

4. 2.) Separate Entity Concept
 Business firm is a separate entity from its
owner.
 Hence transactions are recorded from the
point of view of the firm and not the owner.
 Hence capital is a liability and drawings is an
asset.

5. 3.) Duality Concept
 Each transaction has two effects in opposite
directions i.e. debit and credit.
 As a result of which balance sheet always
tally.

6. 3.) Duality Concept
 All business transactions can take only four
following forms:
1.) Asset – Increases & Liability – Increases
 Eg: Raw materials purchased on credit.
 Stock - Increases Creditors – Increases
2.) Asset–Decreases & Liability-Decreases
 Eg: payment to creditors
 Cash - Decreases & Creditors - Decreases

7. 3.) Duality Concept
3.) Asset – Increases & Another Asset –
decreases
 Eg: Deposit cash in bank
 Bank Balance – Increases & Cash Balance
Decreases
4.) Liability – Increases & Another Liability –
decreases
 Eg: Payment to creditors by O.D
 Bank O.D –Increases & Creditors - Decreases

8. 4.) Going Concern Concept
 A business firm is a going concern, that is it
will continue to operate for a indefinitely long
period in future.
 Thus the fixed assets are recorded at book
value & not market value as they are not
supposed to be sold.

9. 5.) Cost Concept
 Similar to going concern concept
 All assets owned by the business should be
recorded at their acquisition cost.
 If recorded at market value, the firm will have to
keep a constant track on Market price as & when
they change.
 This will lead to time consumption and
inaccuracy.

10. 6.) Accounting Period Concept
 Financial statements are prepared for a
specific time period.
 Generally, it is the period between 1st April to
31st March.
 The main purpose is to know the financial
performance during a particular time period.

11. 7.) Conservation Principle
 “Anticipate no profits, but provide for all possible
losses.”
 If two estimates are there for any future amount:
 In case of assets and revenues-lower amount
should be taken. e.g.: Closing stock
 In case of liabilities and expenses-higher
amount should be taken.
 Provisions are generally made for anticipated
losses and not for revenues.

12. 8.) Realisation Concept
 Revenue should be considered only on the
date when the goods or services are actually
sold.
 Sales on approval or pending sales are not
considered revenue.

13. 9.) Accrual Concept
 The expense incurred or revenue earned
should be considered revenue or expense of
the same period.
 This will be irrespective of the fact that it is
paid/received or is in arrears.

14. 10.) Matching Concept
 Extension to accrual concept.
 Incomes of the given year should be matched
with expenses of that year only.
 But expenses of capital nature are slightly
opposed to this concept.

15. 11.) Consistency Concept
 A firm has various alternatives to value its
inventory, calculate depreciations, etc.
 Consistency concept says that the same
method should be followed over the years.
 Change in methods would lead to
inconsistency in profits.

16. 12.) Materiality Concept
 Full disclosure of each material information /
events.