This presentation provides an overview of accounting principles and standards. It defines accounting as identifying, measuring, and communicating financial information to allow for informed decisions. Accounting standards provide common principles, procedures, and policies to improve transparency. Specific standards cover revenue recognition, asset valuation, cash flow reporting, inventory costs, leases, taxes, intangible assets, and more. The accounting standards board of India issues standards following ICAI principles with input from advisory committees.

1. PRESENTATION ON FINANCIAL ACCOUNTING
PRINCIPLES AND STANDARDS:ACCOUNTING
PRINCIPLES AND CONVENTIONS

2. ACCOUNTING DEFINED
The process of identifying measuring, and
communicating economic information to
permit informed judgments and decisions by
users of the information

3. Definition of
accounting standard
• Common set of principles, standards
and procedures that define the basis of
financial accounting policies and
practices.
• Improve the transparency of financial
reporting in all countries.
• In US, the Generally Accepted
Accounting Principles form the set of
accounting standards widely accepted
for preparing financial statements.

4. Understanding
accounting standard
• It relates to all aspects of an entity’s finances, including
assets, liabilities, revenue, expenses and shareholders’
equity.
• Specific examples of an accounting standard include
revenue recognition, asset classification, allowable
methods for depreciation, what is considered depreciable,
lease classifications and outstanding share measurement.

5. Accounting standard in
India
• Recognizing the need to synchronise the various accounting
principles and practices, the Institute of Chartered Accountants of
India (ICAI) constituted the Accounting Standards Board(ASB) in
April, 1977.
• Accounting standards in India are issued by the ICAI and notified
by the Union Ministry of Corporate Affairs.
• The standards are evolved with the assistance of the National
Advisory Committee on Accounting Standards (NACAs).

6. AS-2 “Valuation of
Inventories”
• Used for computation of cost of inventories and to show
in financial statement till it is sold.
• Consists of:
1. Raw materials
2. Work in progress
3. Finished goods
4. Spares,etc.
• Measurement of inventories:
1. Determination of Cost of inventories, Cost of
purchase , Cost of conversion
2. Determination of Net Realizable Value
3. Comparison of cost and net realizable

7. AS-3 “Cash Flow
Statement”
• Cash flow statements are additional information foe the
user of the financial statement.
• It exhibits the flow of incoming and outgoing cash.
• This AS is not mandatory for small and medium sized
companies.
• Acts as a barometer to judge surplus and deficit.
• Cash flows are explained and shown under following 3
heads:
1. Cash flows from operating activities
2. Cash flows from financing activities
3. Cash flows from investing activities.

8. AS-9 “Revenue recognition”
• As per this AS , revenue is the gross inflow of cash ,
receivables or other consideration arising in the course
of ordinary activities of an enterprise from the sale of
goods , rendering of services & from various other
sources like interest, royalties and dividend.
• It requires revenue to be recorded only when it is
earned.
• 5 steps to revenue recognition
1. Identify the contract with a customer .
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the prices to the performance obligations.
5. Recognize revenue.

9. AS-10 “Property, Plant and
Equipment”
• It enables the users to understand the accounting
treatment for investments made by an entity.
• Issues discussed in this AS are recognition of assets,
depreciation charges, and impairment of assets.
• AS -10 does not apply in the following cases:
1. Biological assets related to agricultural activities
excluding produce on bearer plants.
2. Wasting assets , including mineral rights,
expenditure on exploration and extraction of
mineral oil, natural gas and similar non-
regenerative resources.

10. AS-19 “ Leases”
• Lease is a transaction whereby an agreement is entered
into by the lessor with the lessee for the right to use an
asset by the lessee for the right to use an asset by the
lessee in return for a payment or series of payments for
an agreed period of time.
• This AS is not applicable to:
a) Lease agreements for exploring or using natural
resource. Ex- oil, gas, timber, metals , etc.
b) Licensing agreements . Ex-Motion picture films, video
recordings, etc.
• 2 types of lease:
1. Financial lease
2. Operating lease

11. AS -22 “Accounting for taxes
on income”
• AS -22 seeks to redress the distortions caused by traditional method of
accounting for income-taxes (taxes payable method) by requiring the adoption of
deferred tax accounting in respect of timing differences.
• Accounting income and taxable income for a period are seldom the same.
• Differences between the two are on account of:
I. Permanent differences
II. Timing differences
• Permanent differences are those that arise in one period and do not reverse
subsequently, e.g. an income exempt from tax.
• Timing differences are those which arise in one period and are capable of
reversal in one or more subsequent periods.
Ex-expenditure deferred in accounts but allowed fully for tax purposes only
when liabilities actually crystallise in a
subsequent year.

12. AS-26 “Accounting for Intangible
Asset”
• Intangible assets means assets, without physical substance, which atre
under control of entity held for use , production of goods, rendering of
services and having future economic benefits.
• Following are examples of intangible assets:
1. Goodwill
2. Patent
3. Knowhow
4. Trademarks
5. Software,websites
• Following items are not intangible asset , hence should be written off
instantly
1. Preliminary expense
2. Other deferred revenue expenditure
• Recognition of intangible assets:
cost price paid+ taxes paid+ expenses to obtain title

13. • Exchanged IA should be recorded at
• Fair value of asset surrendered
• Fair value of asset obtained
Whichever is more clearly evident.
• Self generated IA like goodwill,
copyrights should not be recorded as IA
• Remaining IA e.g. software are
recorded as follows:
• Expenditure during research phase
to be transferred to P&L A/C
• And expenditure during
development phase will be
capitalised with value of asset.

14. ACCOUNTING
Language of business
Is a service activity. It’s function is to provide quantitative information,
primarily financial in nature, about economic entities that is intended to
be useful in making economic decision.

15. ACCOUNTING CYCLE
1. Analyze transaction
2. Journalize original entries
3. Post journal entries to
ledger
4. Identify, journalize and post
adjusting entries
6. Prepare financial
statements
5. Journalize and post
closing entries

16. THE NEED OF INFORMATION
Information
Nonquantitative information Quantitative information
Accounting
information
Non-accounting
information
Operating
information
Financial
Accounting
Management
Accounting

17. MEANING OF ACCOUNTING PRINCIPLES
Accounting principles refer to the rules and
actions adopted by the accountants globally
for recording accounting transactions.
These are classified into two categories:
Accounting concepts
Accounting conventions

18. 1. Accounting Concepts
Accounting concepts include the assumptions and conditions on which
the science of accounting is based.
These are also known as accounting standards.
2. Accounting Conventions
Accounting conventions include the customs and traditions that
assists the accountants in preparing accounting statements.

19. ACCOUNTING CONCEPTS & CONVENTIONS
 Business entity
 Money Measurement/stable monetary unit
 Going Concern
 Historical Cost
 Prudence/conservatism
 Materiality
 Objectivity
 Consistency
 Accruals/matching
 Realization
 Uniformity
 Disclosure
 Relevance

21. BUSINESS ENTITY
Meaning
 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

22. Examples
 Insurance premiums for the owner’s house should be excluded from the expense
of the business
 The owner’s property should not be included in the premises account of the
business
 Any payments for the owner’s personal expenses by the business will be treated
as drawings and reduced the owner’s capital contribution in the business

24. MONEY MEASUREMENT
Meaning
 All transactions of the business are recorded in terms of money
 It provides a common unit of measurement
Examples
 Market conditions, technological changes and the efficiency of management
would not be disclosed in the accounts

26. GOING CONCERN
Meaning
 The business will continue in operational existence for the foreseeable future
 Financial statements should be prepared on a going concern basis unless
management either intends to liquidate the enterprise or to cease trading, or
has no realistic alternative but to do so

27. Example
 Possible losses form the closure of business will not be anticipated in the
accounts
 Prepayments, depreciation provisions may be carried forward in the expectation
of proper matching against the revenues of future periods
 Fixed assets are recorded at historical cost

29. HISTORICAL COST
Meaning
 Assets should be shown on the balance sheet at the cost of purchase instead of
current value
Example
 The cost of fixed assets is recorded at the date of acquisition cost. The
acquisition cost includes all expenditure made to prepare the asset for its
intended use. It included the invoice price of the assets, freight charges,
insurance or installation costs

31. PRUDENCE/CONSERVATISM
Meaning
 Revenues and profits are not anticipated. Only realized profits with reasonable
certainty are recognized in the profit and loss account
 However, provision is made for all known expenses and losses whether the
amount is known for certain or just an estimation
 This treatment minimizes the reported profits and the valuation of assets

32. Example
 Stock valuation sticks to rule of the lower of cost and net realizable value
 The provision for doubtful debts should be made
 Fixed assets must be depreciated over their useful economic lives

34. MATERIALITY
Meaning
 Immaterial amounts may be aggregated with the amounts of a similar nature or
function and need not be presented separately
 Materiality depends on the size and nature of the item

35. Example
 Small payments such as postage, stationery and cleaning expenses should not
be disclosed separately. They should be grouped together as sundry expenses
 The cost of small-valued assets such as pencil sharpeners and paper clips
should be written off to the profit and loss account as revenue expenditures,
although they can last for more than one accounting period

37. OBJECTIVITY
Meaning
 The accounting information should be free from bias and capable of
independent verification
 The information should be based upon verifiable evidence such as invoices or
contracts

38. Example
 The recognition of revenue should be based on verifiable evidence such as the
delivery of goods or the issue of invoices

40. CONSISTENCY
Meaning
 Companies should choose the most suitable accounting methods and treatments,
and consistently apply them in every period
 Changes are permitted only when the new method is considered better and can
reflect the true and fair view of the financial position of the company
 The change and its effect on profits should be disclosed in the financial
statements

41. Examples
 If a company adopts straight line method and should not be changed to adopt
reducing balance method in other period
 If a company adopts weight-average method as stock valuation and should not
be changed to other method e.g. first-in-first-out method

43. ACCRUALS/MATCHING
Meaning
 Revenues are recognized when they are earned, but not when cash is received
 Expenses are recognized as they are incurred, but not when cash is paid
 The net income for the period is determined by subtracting expenses incurred
from revenues earned

44. Example
 Expenses incurred but not yet paid in current period should be treated as
accrual/accrued expenses under current liabilities
 Expenses incurred in the following period but paid for in advance should be
treated as prepayment expenses under current asset
 Depreciation should be charged as part of the cost of a fixed asset consumed
during the period of use

45. PROBLEMS IN THE RECOGNITION OF EXPENSES
Normally, expenses represents resources consumed during the current
period. Some costs may benefit several accounting periods, for
example, development expenditures, depreciation on fixed assets.

46. RECOGNITION CRITERIA FOR EXPENSES
Association between cause and effect
Expenses are recognized on the basis of a direct
association between the expenses incurred on the
basis of a direct association between the expenses
incurred and revenues earned
For example, the sales commissions should be
accounted for in the period when the products are
sold, not when they are paid

47. Systematic allocation of costs
When the cost benefit several accounting periods,
they should be recognized on the basis of a
systematic and rational allocation method
For example, a provision for depreciation should be
made over the estimated useful life of a fixed asset
Immediate recognition
If the expenses are expected to have no certain future
benefit or are even without future benefit, they should
be written off in the current accounting period, for
example, stock losses, advertising expenses and
research costs

49. REALIZATION
Meaning
Revenues should be recognized when the major economic activities have
been completed
Sales are recognized when the goods are sold and delivered to customers
or services are rendered

50. RECOGNITION OF REVENUE
The realization concept develops rules for the recognition of revenue
The concept provides that revenues are recognized when it is earned, and
not when money is received
A receipt in advance for the supply of goods should be treated as prepaid
income under current liabilities
Since revenue is a principal component in the measurement of profit, the
timing of its recognition has a direct effect on the profit

51. RECOGNITION CRITERIA FOR REVENUES
The uncertain profits should not be estimated, whereas reported profits
must be verifiable
Revenue is recognized when
1. The major earning process has substantially
been completed
2. Further cost for the completion of the earning
process are very slight or can be accurately
ascertained, and
3. The buyer has admitted his liability to pay for
the goods or services provided and the ultimate
collection is relatively certain

52. Example
 Goods sent to our customers on sale or return basis
 This means the customer do not pay for the goods until they confirm to buy. If
they do not buy, those goods will return to us
 Goods on the ‘sale or return’ basis will not be treated as normal sales and should
be included in the closing stock unless the sales have been confirmed by
customers

53. PROBLEMS IN THE RECOGNITION OF REVENUE
Normally, revenue is recognized when there is a sale
The point of sales in the earning process is selected as the most
appropriated time to record revenues
However, if revenue is earned in a long and continuous process, it is difficult
to determine the portion of revenue which is earned at each stage
Therefore, revenue is permitted to be recorded other than at the point of
sales

54. EXCEPTIONS TO RULE OF SALES
RECOGNITION
1. Long-term contracts
 Owning to the long duration of long-term
contracts, part of the total profit estimated to
have been arisen from the accounting period
should be included in the profit and loss account
2. Hire Purchase Sale
 Hire purchase sales have long collection period.
Revenue should be recognized when cash
received rather than when the sale (transfer of
ownership) is made
 The interest charged on a hire purchase sale
constitutes the profit of transaction

55. 3. Receipts from subscriptions
- A publisher receives subscriptions before it
sends newspapers or magazines to its
customers
- It is proper to defer revenue recognition until the
service is rendered.
- However, part of subscription income can be
recognized as it is received in order to match
against the advertising expenses incurred

57. DISCLOSURE
Meaning
 Financial statements should be prepared to reflect a true and fair view of the
financial position and performance of the enterprise
 All material and relevant information must be disclosed in the financial
statements

59. UNIFORMITY
Meaning
 Different companies within the same industry should adopt the same
accounting methods and treatments for like transactions
 The practice enables inter-company comparisons of their financial positions

61. RELEVANCE
Meaning
 Financial statements should be prepared to meet the objectives of the users
 Relevant information which can satisfy the needs of most users is selected and
recorded in the financial statement

62. ACCOUNTING PERIOD CONCEPT
 Monitor the performance of the organization periodically
 One accounting period will be considered
 Calculating accounts for more than one accounting period will be
tedious

63. THANK YOU
By-
HARSHIT TANWAR CHAITANYA PRATYUSH VARAN CHANDOLA
BBA LL.B BBA LL.B BBA LL.B
02114903522 01614903522 03614903522