Concepts
basic assumptions, rules and principles which work as the basis for recording of business transactions and preparing accounts
Accounting concepts
abbreviation ICAI
Institute of Chartered Accountants of India
The Institute of Chartered Accountants of India (ICAI) constituted
the ..... ........... in April, 1977 for developing accounting standards.
Accounting Standards Board (ASB)
She paid salaries to employees for `16,000.
Assets =Liabilities + Capital
Cash + Goods + Debtors
Old equation
2,70,000 + 1,25,000 + 30,000 = 60,000 + 3,65,000
New equation?
New equation
2,54,000 + 1,25,000 + 30,000 = 60,000 + 3,49,000
Rent paid in cash on 1st April, 2014
Date
Particulars
2014
Rent A/c ............................... Dr
April 1 To Cash A/c .................
(Rent paid in cash)
On the basis of this concept, depreciation is charged on the fixed assets
going concern
DEFINE An accounting convention
common practices which are universally followed in recording and presenting accounting information of the business entity
AS 5 AND AS6
AS-5
Net profit or loss for the period, prior period (period before the date of balance
sheet) items and changes in accounting policies (November 1982, Revised in
February 1997). This standard deals with the treatment in financial statement of
prior period and extraordinary items and changes in accounting policies.
AS-6
Depreciation Accounting (November 1982). This standard applies to all
depreciable assets. But this standard does not apply to assets in the category
of forests, plantations and similar natural resources and wasting assets.
Prepare accounting equation from the following Transactions:
`
1. Hemant started business with cash
3,00,000
2. Purchased goods for cash
80,000
3. Sold goods[costing `30,000] for 45,000
265000+50000=315000
Name six accounts you saw in class
Sales, purchases, drawings, bank, cash,machinery
In the absence of this concept, the cost of a fixed asset will be treated as an expense in the year of its purchase
going concern
T OR F
Precious metals like gold, diamond, and minerals are generally valued at a markup price
horizontal consistency assists in making a comparison of the performance of one business entity with the other business entity in the same trade and on the same date(time basis)
F,F
AS14, AS15,AS29
AS-14
Accounting for amalgamation (October 1994). This standard deals with accounting treatment of any resultant goodwill or reserves in amalgamation of companies.
AS-15
Accounting for retirement Benefits in the financial statements of employers (January 1995). This standard deals with accounting for retirement benefits in the financial statements of employers.
AS-29
Provision for contingent labilities and contingent assets (2004). This standard
deals with measurement and recognition criteria in three areas, namely
provisions, contingent liabilities and contingent assets
4. Purchased goods from Monika
70,000
5. Salary paid 7,000
6. Commission received
5,000
7. Paid Cash to Monika in full settlement
69,000
265000+120000=315000+70000
258000+120000=308000+70000
263000+120000=313000+70000
194000+120000= 314000
Analyse in Tabular form and Enter the following transactions in the Journal of Bhagwat
and Sons
2014
`
January 1 Tarun started business with cash
1,00,000
January 2
Goods purchased for cash
20,000
January 4 Machinery Purchased from Vibhu
30,000
Date Particulars L.F.
Amount Amount
`
`
2014
Jan. 1 Cash A/c Dr.
1,00,000
To Tarun Capital A/c
1,00,000
(Capital brought in by Tarun)
Jan. 2 Purchases A/c Dr.
20,000
To Cash A/c
20,000
(Goods purchased for Cash)
Jan. 4 Machinery A/c Dr.
30,000
To Vibhu’s A/c 30,000
(Machinery purchased from Vibhu
on credit)
This concept requires asset to be shown at the price at which it has been acquired, which can be verified from the supporting documents
Accounting cost concept
i. The shareholders would like to know about the ___________ of the business.
ii. The convention of full disclosure requires that there should be full, ___________, and ___________ disclosure of accounting information. iii. The creditors are interested to know the ___________ of the business
(i) profitability (ii) fair, adequate (iii) solvency
AS8AS22 AS27
AS-8
Accounting for Research and Development (January 1985). This standard deals with the treatment of costs of research and development in financial statements
AS-22
Accounting for taxes on Income (April 2001). This standard deals with determination of the account of tax expenses for the related revenue
AS-27
Financial reporting of interest for joint venture (February 2002). This standard sets principles and procedures for accounting for interest in joint venture.
8. Goods sold to Rahul {Costing `20,000} for 25,000
194000+100000+25000=319000
Date
Particulars L.F. Amount Amount
`
`
2014
Nov. 30 Salary A/c Dr.
6,000
To Cash A/c 6,000
(Salary paid in Cash)
Nov. 30 Rent A/c Dr.
12,000
To Cash A/c 12,000
(Rent paid in Cash)
2014
Nov. 30 Salary A/c Dr.
6,000
Rent A/c Dr.
12,000
To Cash A/c 18,000
(Payment of Salary and Rent in Cash)
NAME SIX IMPORTANT ACCOUNTING CONCEPTS
The important accounting concepts are business entity, money measurement, going concern, accounting period, cost concept, duality aspect concept, realisation con?cept, accrual concept, and matching concept
DEFINE 4 CONVENTIONS
Convention of consistency states that the same accounting methods should be adopted every year in preparing financial statements. Convention of disclosure states that all material and relevant facts relating to financial statements should be fully disclosed. Convention of materiality states that, to make financial statements more meaningful only significant information should be shown in the financial statements. Convention of conservatism states that, profit should not be recorded until it is realised. But if business anticipates any loss in near future provision should be made in the books of account
Interim financial reporting (February 2002). This standard deals with the minimum content of interim financial report.
Leases (January 2001). This standard deals with the accounting treatment of transactions related to lease agreements.
AS25
AS19
Prepare accounting equation from the following Transactions:
`
1. Nutan started business with cash
4,00,000
2. Purchased goods from Rohit
60,000
3. Sold goods[costing `25,000] for cash
22,000
4. Purchased goods for cash
50,000
5. Salary outstanding
3,000
6. Rent received
6,000
7. Paid Cash to Rohit on account
35,000
8. Goods sold to Bharti {Costing `30,000} for 40,000
343000+55000+40000= 20000+410000
Complete the following journal entries:
(i) Drawings A/c ................... Dr.
To ................... A/c
(Money withdrawn from Bank for Personal use)
(ii)
Cash A/c ................... Dr.
...................................... Dr.
To Rohit’s A/c
(Payment received form Rohit in full and final settlement of his A/c)
(iii)
................... A/c Dr.
To Rent A/c
(Rent paid in advance)
(iv)
Interest on Capital A/c Dr.
To ................... A/c
(Interest allowed on capital)
(v) ................... A/c Dr.
To Commission outstanding A/c
(Commission outstanding for December)
(vi)
Cash A/c ................... Dr.
................... A/c Dr.
To Satish’s A/c
(Part payment of a debt received due to insolvency of Satish)
II. (i) Cash A/c
(ii) Discount
(iii) Prepaid Rent
(iv) Capital A/c
(v) Commission A/c
(vi) Bad Debts A/c