(1) Relevance
The Conference emphasizes the importance of the fact that such information should only be used by the accounting as relevant and useful for achieving its goals. For example, companies are interested by what the total cost of the work? It is not interested in knowing what people spend and to save what.
(2) objectivity
The objective of the Convention states thatAccounting> Information should be measured and expressed by the rules, which are commonly accepted. For example, should not lie on stocks of unsold goods at the end of the year as its cost structure will be drawn at a higher price into consideration, although it will probably be sold at higher prices in the future. The reason is that nobody can be sure, the price that will prevail in the future.
(3) Feasibility
The Convention stresses that the feasibility of time, effort and cost analysisAccounting information should be compared to the benefits resulting therefrom. For example, the cost of "oil-and fat-free", the machine is so small that their failure per unit of product is meaningless and will amount "to work and waste of time accounting staff.
Accounting Concepts
(1) materiality
It refers to the relative importance of an object or event. Those who make accounting decisionsconstantly with the need to face judgments about materiality. This article was big enough for the users of the information that must be influenced by it? The essence of the concept of materiality is the following: the omission or misstatement of an item is material if, in light of the circumstances, the size of the product so that it is likely that the finding out of a reasonable person of the relationship changed, or influenced the inclusion or correctionVoice.
(2) Accounting period
Although accounting still believes in the concept that life is eternal, but the business unit must report "the results of activities within the specified period (usually one year) carried out. Thus, the book gains or losses tries earned or incurred by the sector during the present reporting period. Usually it is the calendar year (January 1 to December 31), butin other cases it may in the year (April 1 to March 31) or a different period depending on the convenience of work or business practices in the country to be.
Incurred to be considered by this approach taken during the reporting period, all revenues and expenses to the date of the financial year available. The problem that arises is this concept that the correct relationship between the capital and should be madeRevenue expenditure. Otherwise the results will be reported in the affected household.
(3) Implementation
This concept emphasizes that gains should only be considered if possible. The question is, should be seen as profit gained at what time? If after receiving the order or the date of execution of the order or the date of receipt of the money. To answer this question, the accounts are prepared in accordance with the law(Sales of Goods Act) and to safeguard the rule of law, that the revenue only when the goods are transferred deserves. This means that the profit in mind when we "to transfer ownership of the goods are" recovered, ie. when revenue is concerned.
(4) Correspondence
Even if the business is one thing, its continuity is artificially divided into different exercises to determine the results at regular intervals. This gain is the measure of the economic situationPerformance is a problem and as such increase equity holders. Since profit is the excess of receipts over expenditures is necessary to bring together all the revenue and expenditure for the period under review. Have the realization and accrual concepts are derived mainly from the need to expenses in respect of revenue earned in the period match. The income and expense in the profit and loss account, both on the same products or services are transferredmade during the reporting period. The concept of correspondence requires that the revenue expenditure has to appropriate accounting period match. Therefore, we must determine the income in a given accounting period and cost of creating such a transaction is generated.
(5) Entity
According to this concept, it is the task of measuring income and assets made ??by accountants, for an identifiable unit or unit: the unit orpersons identified in this way is treated differently and separately from its owners or employees. In law, the distinction between asset owners and used only in case of joint-stock company, but this distinction is in accounting for sole proprietorship and partnership enterprises made ??as well. For example, the burden of the assets of the business used for commercial purposes treated as a business expense, but used similar products by the owner orOwner for his personal use is treated as his drawings. This distinction between the owner and the business unit's accounting has contributed to the biggest return in the objectivity and balance. It was also on the development of "responsibility accounting" to us to find out out the profitability permits, although the different subunits of the core business.
(6) stable monetary unit
Accounting assumes that the purchasing power Monetary units, say rupee remains the same everywhere. For example, the intrinsic value of one rupee is equal and equally ignored for the year 1800 and 2000 so that the effect of increasing or decreasing the purchasing power of the currency because of inflation or deflation. Despite the fact that the hypothesis is unreal and the practice of ignoring changes in the value of money is now widely questioned, however, suggested alternatives, to include the value of money in exchangeAccounting> statements, that is., Current methods of purchasing power (CPP) and current method of cost accounting (CCA) are evolving. Therefore, for the moment we have with the concept of "stable monetary unit content.
(7) Costs
This concept is closely tied to the concept of business continuity. On this basis, an asset is usually in the books at the same price at which you bought noted that at its cost price. This "cost" is the basis forAccounting for these activities during the following period. These "costs" should not be confused with "value".
It should be noted that, as the real value of assets changes from time to time, that does not mean that the value of these assets are recorded properly in the books. The book value of assets is not their true value. It does not mean that the values ??in this document are the values ??that can be sold are. Even though the activities recorded inBooks at cost, over time will decrease because of depreciation. Pay in some cases, only the activity as "good will" that will appear in the books at cost price and if they do not pay, will not be displayed even if it created a good name and reputation of the concern.
Therefore, the values ??in terms of sheet assets and earnings, are not as stated in the profit and loss account balance to reflect the correctMeasure of the company's financial position because they have no connection with the market value of the goods or their replacement values. This idea that the transactions are carried at cost, but should be seen as an arbitrary and subjective value concept to be recorded as costs are known. Vary over time, the market value of fixed assets such as land and building costs a lot of them.
These modifications or changes in value are generally ignored by the accounting andstill in the balance sheet at cost value. The principle of valuing assets at cost rather than at market value is the principle behind the concept of cost. After them, the current values ??will form alone rather the cost to the company.
The cost is based on the principle of objectivity. Proponents of this approach argue that as long as the users of financial statements in the trust, there is no need to changethis method.
(8) Conservatism
This concept emphasizes that gains should not be overestimated or expected. Traditionally follows accounting rule "do not expect a profit and provide for all possible losses. For example, ending stocks will be at cost or market price, whichever is less appreciated. The effect of this, that, if market prices fell in the" expected loss " involved, but if the market price has risen, then ignore the"Expected Results of Operations".
Critics point out that maintaining a level in excess will lead to the creation of hidden reserves. This is quite contrary to the teachings of the disclosure. However sensible conservatism can not come in for criticism.
Accounting Equation
Combination can be called "for every debit, there is a credit." Every transaction is expected to come into force two sides to the extent the same amount. This concept has led toAccounting equation that should at any time, the assets of a company the same (monetary) of total assets and liabilities of the owner outsiders States. This can be expressed as an equation:
AL = P
where
A stands for the activity of the subject;
L stands for liabilities (debts outsiders) of the subject, and
P stands for the entitlement holder (capital) for the company.
(The form of presentation is consistent equation AL = Pwith the legal interpretation of the financial position and results. So that really emphasizes the owner's claim to the balance sheet provision for claims against the company from outside the company's total assets).
Source: http://business-accounting.chailit.com/accounting-conventions-and-accounting-concepts.html
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