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Unit 1
Confidential
Unit-Overview
Accounting Concepts, Conventions and Principles, Accounting Equation, International Accounting Principles and Standards & Matching of Indian Accounting Standards with International Accounting Standards
Page 2
Discussion Topics
Accounting Concepts ,Conventions & Principles
Accounting Equation
International Accounting Principles and Standards & Matching of Indian Accounting Standards with International
Characteristics of Accounting
Economic events
Organization
Accounting Principles
Accounting Principles can be divided between :-
1.
2.
Accounting Concepts
Accounting Conventions
The term concept is used to connote accounting postulates, which are necessary assumptions and conditions upon which accounting is based. The
Accounting Concepts
Business Entity Concept
Business is separate entity than owner. All business transaction recorded in separate books & even owner is treated as a creditor to the extent of his/her capital.
Cost Concept
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Dual Aspect Concept
Every transaction has two aspects a debit & a credit'. The sum of all debits will
Realisation Concept
Transactions are recorded only when they occur & not in anticipation of their occurrence.
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Accrual Concept
Income is recorded when goods are supplied or a service is rendered, even though the
money may be received later; expenditure is recorded when goods are procured or a service
is availed, even though the money may be paid late.
Matching Concept
Income and expenses for a period are correlated to ensure that the accounts project an accurate picture. Therefore:
When an income is recorded, all expenses incurred to earn that income must be recorded.
Related income and expenditure must be recorded during the same reporting period.
Accounting Convention
Consistency
Accounting practices should remain the same from year to year.
Disclosure
All information which is essential for fully understanding the financial statement should be disclosed in addition to the information required to be disclosed by law.
Conservatism
Financial statements should be drawn up on a conservative basis i.e. anticipated income should not be recorded whereas likely losses should be provided for
Functions of Accounting
Keeping Systematic Records Systematic record of financial statements, maintain theses records in financial statements. Protecting Properties Of The Business Protect assets from an unjustified & unwarranted use. Communicating The Results Communicate & share results with stakeholders for showing true position of the business. Meeting Legal Requirements Meet the legal requirements under the Companies Act, Income Tax Act, Sales Tax Act and so on.
Systems Of Accounting
Cash System
This system takes into account only cash receipts and payments on the assumption that there are no credit transactions.
of the transactions and it ignores the impersonal items. So it is incomplete, inaccurate and
unscientific.
Discussion Topics
Accounting Concepts ,Conventions & Principles
Accounting Equation
International Accounting Principles and Standards & Matching of Indian Accounting Standards with International
Business Transactions
A business transaction is an economic event or condition that directly changes an entitys financial condition or directly affects its results of operations.
On November 1, 2010, John begins a business that will be known as Soft Solutions.
Assets
Cash + Land Bal. 25,000 b. 20,000 +20,000 Bal. 5,000 20,000
= =
d. Soft Solutions provided services to customers, earning fees of Rs.7,500 and received the amount in cash.
Assets =
Cash + Supplies + Land Bal. 5,000 1,350 20,000 d. + 7,500 Bal. 12,500 1,350 20,000
Owners Liabilities + Equity Accounts John, Payable Capital 1,350 25,000 + 7,500 Fees earned 1,350 32,500
e. Soft Solutions paid the following expenses: wages, Rs.2,125; rent, Rs.800; utilities, Rs.450; and miscellaneous, Rs.275.
Assets =
Bal.8,850
1,350
20,000
Owners Liabilities + Equity Accounts John, Payable Capital 1,350 32,500 2,125 Wages 800 Rent 450 Util. 275 Misc. 1,350 28,850
Cash + Supplies + Land Bal. 8,850 1,350 20,000 f. 950 Bal. 7,900 1,350 20,000
Owners Liabilities + Equity Accounts John, Payable Capital 1,350 28,850 950 400 28,850
g. At the end of the month, the cost of supplies on hand is Rs.550, so Rs.800 of supplies were used.
Assets =
Cash + Supplies + Land Bal. 7,900 1,350 20,000 g. 800 Bal. 7,900 550 20,000
Owners Liabilities + Equity Accounts John, Payable Capital 400 28,850 800 Supplies expense 400 28,050
h. At the end of the month, John withdrew Rs.2,000 in cash from the business for personal use.
Assets =
Cash + Supplies + Land Bal. 7,900 550 20,000 h. 2,000 Bal. 5,900 550 20,000
Owners Liabilities + Equity Accounts John, Payable Capital 400 28,050 2,000 Withdrawal 400 26,050
Net income
Discussion Topics
Accounting Concepts ,Conventions & Principles
Accounting Equation
International Accounting Principles and Standards & Matching of Indian Accounting Standards with International
Introduction
Financial statements are prepared to summarize the end-result during an accounting period in monetary terms.
Comparison of financial statements poses some difficulties because of the divergence in the methods and principles adopted by different enterprises.
Accounting Standards
Accounting Standards are the statements of code of practice of the regulatory
The uniform , definite and universally accepted accounting rules developed by International Accounting Standards Committee (IASC) are known as
Accounting Standard.
standardization in presentation.
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The Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices at present in use in India & constituted Accounting Standards Board (ASB) on April 21, 1977. The main role of ASB is to formulate Accounting Standards from time to time.
The International Accounting Standards Board (IASB) is the independent, accounting standard-setting body of the IFRS foundation.
It is responsible for developing International Financial Reporting System(the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards.
AS 4- Contingencies and Events Occurring after the Balance Sheet Date AS 5- Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies
AS 6- Depreciation Accounting AS 7- Construction Contracts (revised 2002)
IAS 7 -Cash Flow Statement IAS 8- Net Profit or Loss for the period, . Fundamental Errors and change in Accounting Policies AS 9 -Revenue Recognition IAS 9- Research and Development Costs AS 10 -Accounting for Fixed Assets IAS 10 -Contingencies and Events Occurring after the Balance Sheet Date
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AS 16 - Borrowing Costs IAS 16- Property , Plant and Equipment AS 17- Segment Reporting IAS 17- Accounting for leases
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AS 26- Intangible Assets
IAS 26- Accounting and Reporting by Retirement Benefit Plans AS 27- Financial Reporting of Interests in Joint IAS 27- Consolidated Financial Statements and Ventures Accounting for Investments in subsidiaries AS 28- Impairment of Assets IAS 28- Accounting for Investment in Associates AS 29- Provisions, Contingent` Liabilities and IAS 29- Financial Reporting in Hyperinflationary Contingent Assets Economics .. IAS 30- Disclosure in the Financial Statement of Banks and Similar Financial Institutions .. IAS 31- Financial Reporting of Interests in Joint Ventures IAS 32- Financial Instruments: Disclosure and Presentation IAS 33- Earnings per Share IAS 34-Interim Financial Reporting . IAS 35 -Accounting for discontinuing operations IAS 36 -Impairment of Assets . IAS 37-Provision for Contingent liabilities and assets IAS 38 -Auditing IAS 39- Financial Performance Appraisal, Recognition and Measurement