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F.Y.B.Com THEORY F.Y.B.Com
ACCOUNTING PRINCIPL E S.
Accounting principles are guidelines & standards, which have been
accepted by the accounting profession in preparation and presentation of
accounts of the business. It is approved and normally accepted by the
government bodies & controlling authorities.
Accounting principles are uniform in order to understand in the same
sense by those using it. Also they are not rigid (i.e. inflexible) like principle of
gravity but they are flexible. This is because mainly the account principles are
social science. Accounting principles are not universal and permanent as they are
not discovered but are developed by man from time to time. Thus the
development of accounting principles is a continuous process.
Accounting principles are evolved over the year by following_
1. The Professional Institutions like the
“INSTITUTE OF CHARTERED ACCOUNTANTS OF
INDIA”
2. The legislation of the country like_
“C OM PANY LA W B OARD (C LB) ”
“C EN TRA L BO ARD OF DI RECT T AXES (CB DT)” etc.
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F.Y.B.Com THEORY F.Y.B.Com
The entity concepts form the basic for recognition of the
accounting concepts.
2. The Going Concern Concept:- According to this concepts an
enterprises has an unlimited existence. Thus the concept of
Going Concern Continuity can be expr-
ssed as under.
“Unless & until there is evidence to the contrary, an
enterprise must be considered as continuing largely in its
present form and with its present purpose”
There are some undertakings (business) which are
primarily for limited period. Such entities are exceptions.
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F.Y.B.Com THEORY F.Y.B.Com
7. The Accrual Concept
The matching process as discussed above ultimately
results in what is known as the Accrual concept. This
concept is also called the Accrual theory of Accounting or
Accrual Accounting It means a system of recording revenues
and expenses of particular accounting period. Whether or
not they are receive or paid in cash, at the time of
accounting. It is also known as “Mercantile System of
Accounting” as contrasted to “ Cash system of Accounting.
In cash system of accounting, the revenues are recorded
only when received, whether due or not. Payments i.e.
expenses are also recorded irrespective of the fact whether
they pertain to the period concerned or not.
For matching of costs and revenue under accrual
concept, all revenues related to current year, whenever
received, and all costs of the current year, whenever paid,
must be taken into account.
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iii. Materiality:
The accounting convention of ‘materiality’ means that
the effect of all significant or material transactions must be
reported in conformity with the general accepted accounting
principles.
This convention puts a check on the unnecessary
disclosure in the financial statements. The financial
statements should not be bulky with unnecessary details
which are not material. A separate disclosure would be
necessary, if an item is material in nature. The Companies
Act, 1956 also says that a separate disclosure of items of
income and expenses should be made if it exceeds 1% of
total revenue of the company.