Accounting Principles:Accounting Conventions.

Accounting principles are those rules or methods, which

are followed by the Accountants universally while recording the transactions. The uniformity in accounting records is necessary for making it a universally understandable. This universality in understanding is possible only when some standard language is used. For this purpos e generally acceptable rules and principles are adopted which are called as accounting concepts and

Accounting Concepts:These are basic assumptions for the conduct of accounting work. Accounting is the language of the business; hence it uses certain words or phrases in a special sense. Accounting work is conducted on certain rules and regulations based on these words or phrases. For examples, in Accounting it is assumed that a business concern will continue for an indefinite period (Going concern concept) each transaction involves two parties, dual aspects concept. Thus the accountant must have thorough knowledge about these concepts. The following are the important accounting concepts.

1. Business Entity Concept 2. Going Concern Concept 3. Cost Concept 4. Money Measurement Concept 5. Dual Aspect Concept 6. Accounting Period Concept 7. Realization Concept 8. Matching Concept
These Accounting Concepts are explained as under:-

1. Business Entity Concept:According to this concept a business concern is treated as a unit or entity separate from its owners, creditors and others. All the transactions of the business are recorded in the books of the accounts from the point of view of the business as an entity and even the owner is regarded as a creditor to the extent of his capital. The concept of separate entity is applicable to all forms of business organizations. Therefore, in account ing, the affairs of the business are not mixed up with that of the owners.

2. Going Concern Concept:According to this concept it is assumed that a business concern will continue for an indefinite period. All the business transactions are recorded under the assumption that the enterprise has neither the attention nor the necessity of liquidation or of curtailing the scale of the operations. If this assumptions is not followed, the fact should be disclosed with reasons. It is due to this concept that the fixed assets are depreciated on their expected life rather than on the basis of market v alue.

3. Dual Aspect Concept:This principle is the core of Accountancy. All business transactions are recorded as having a dual aspect, i.e. for every debit, there is a credit. For Example, when a person starts business with cash Rs.10,000 and building Rs. 20,000, it is recorded at two places i.e. assets and Capital. The Capital of the business will be equal to Assets. This expression can be shown in t he form of equation as under: Capital = 300,000 = Assets (Building + Cash) 200,000 + 100,000

If the business increases the assets by borrowing Rs.20,000 then the dual aspect of this transaction affect the equation as under: Capital + Liabilities 300,000 + 20,000 = = Assets (Building + Cash) 200,000 + 120,000

Briefly the dual aspect can be expressed as under: Capital + Liabilities = Assets

This system or recording the transactions is called Double Entry Concept.

4. Cost Concepts:Under this concept the assets of the business are recorded at cost basis. The cost means, the price paid to acquire that asset. This cost of the asset is the basis for all subsequent accounting for that asset. The cost of the asset recorded at t he time of purchase is systematically reduced with an annual charge called as Depreciation. According to Cost Concept, if nothing has been paid for acquiring an asset, then it would not be shown in the Accounting books as an asset. Therefore, by the cost concept, we mean that every asset will be shown in the books at its cost and not at the market price. Under this concept the records become more reliable comparable and truthful.

5. Money Measurement Concept:This Concept underlines the principle that in Accounting only those transactions that can be expressed in monetary terms are recorded. In other words those transactions or events, which cannot be expressed in terms of money, are not recorded in the books t hough they may be very useful for the business. For example, if a business has an efficient dedicated Manager, it is definitely an asset to the business, but since the monetary measurement is not possible of this fact so it is not shown in the books. In view of the above condition this concept puts a serious handicap on the usefulness of accounting records for management.

6. Accounting Period Concept:Since the life of the business is assumed to indefinite (Going Concern Concept) the accountants choose some shorter and convenient time for the measurement of the income. Twelve months period is usually adopted for this purpose. This time interval is called Accounting period. The Accounting period can begin on any day. Normally businessmen can adopt such an Accounting period that suits to the nature of their business.

7. Realization Concept:Under this concept, Revenue is treated as earned at the time when the transaction is complete. For example sale is complete when the goods are transferred from the buyer to the seller. This concept is v ery important for consideration of earnings.

8. Matching Concept:It is the recognized fact that the only motiv e behind a proprietor is to earn profit. For the ascertainment of profit the expenses of a period are compared / matched to rev enue of that particular period. While calculating net income from business all costs applicable to that period should be charged against that rev enue. A distinction between capital and rev enue incomes and expenditure is also necessary. Therefore, the rev enue and expenses of one year are usually considered for this purpose. The basic equation for ascertaining the income is as under:Revenues - Expenses = Net income