Professional Documents
Culture Documents
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þ Externally communicated accounting
information must be prepared in accordance
with accounting standards that are understood
by both the senders and the users of the
information. These standards are known as
Generally Accepted Accounting Principles
(GAAP), and provide the general framework for
determining what information is included in the
financial statements and how this information
is to be presented. Since accounting is a
service activity, these principles reflect the
needs of the society and not those of the
accountants or any other single constituency.
These are the guidelines for measurement and
presentation of accounting information and are
used by professional accountants in preparing
accounting information and reports
þ The Money Measurement
þ Entity
þ Going concern
þ Cost
þ Dual aspect
þ Accounting period
þ Conservatism
þ Realization
þ Matching
þ Consistency
þ Materiality
þ Objectivity
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þ Although the business may own seven buildings, five boilers,
fifty cars, thirty trucks, you cannot add them together simply
like that and get to know what the business is worth.
þ Expressing these items in monetary terms by saying that one
has buildings worthRs15 crores, boilers worth Rs 50 lac, cars
worth Rs 1 crore and trucks worth¶s 2 crores would make it
easier for one to add up these items by adding their monetary
values. We may not be able to add apples and oranges directly
but we can add them easily by expressing them in their
monetary terms.
þ So the money provides a common denominator by which the
resources and other factors about the business entity can be
expressed and valued. Expressing in monetary terms also
helps in understanding the changes their impact on the value
of the resources.
þ As you see this concept imposes a severe limitation on the
scope of accounting. It is impossible for the accounting to
record or report the health of the key people in the organization
or the plant that is not working or the labor is going on strike
or that the key people are leaving the organization and other
important factors that may have a direct bearing on the future
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