Fundamental principle of accounting

FUNDAMENTAL PRINCIPAL OF ACCOUNTING

This Study Note includes

1.1    Definition of Accounting 

1.2    Accounting concepts

1.3    Accounting Convention

1.4    Importance of Accounting

1.5    Terminology of Accounts

   

1.1 Definition of Accounting 

  Accounting  : Defines in different way with the different Accounting experts , some of the common definition are: 

1.2 Accounting concepts

Accounting concepts  :  Generally Accepted Accounting Principle (GAAP) issued different Accounting concepts  to be followed by the different user of Accounts so that  to be on the same page of Accounts.

                                                      Following are the different Accounting concepts are,

1.3 Accounting Convention:   These are the generally accepted customs formed on the basis of agreement of different parties. They are different form accounting concepts as concepts gives a theoretical aspect while conception are generally accepted concepts.

There are four main conventions that are universally accepted. They are 

               

1)    Materiality convention: The concepts of materiality states that smaller items don’t need to strictly theoretically correctly treated. There are various events that are not relevant for the business. Hence, this concepts asks the accountants to reports only that information which can affect decision-making . such information in known as material information.

2)    Conservatism Convention : The accounted follow the ‘safe play’ policy. With this, the profit are not inflated, while all the expenses are recorded. The gains and revenues must be reported only when they have been realised.

3)    Consistency Convention : For various periods , same accounting principal and techniques should be followed. If SLM methods are charged for calculating depreciation then  same should be continued in the subsequent years.

4)    Full Disclosure Convention : The creditors , suppliers, lenders and owners, shall be notified of any facts required for the correct interpretation of the declarations. Full disclosure might be made in the financial reports or in the corresponding notes.