Management - 4
Management - 4
Management - 4
UGC - NET
MANAGEMENT
UNIT - 4
Unit - 4
Unit-4
Management - IV
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Unit - 4
• Also include various procedures of applying these principle GAẠP are like
ground rule of accounting ensure similar recording of accounting transaction
by all.
• Accounting principle goes through ongoing development process whenever
environment change and new needs of society evolves.
• These are not final statement subject to modification depending upon change
in business practices.
• Accounting principles and there acceptability depends upon following factor
:
(a) Relevance
(b) Objectivity
(c) Feasibility.
Significance of Accounting Principles
• Identify various items as income, expanse, assets etc.
• Facilitate the presentation of various accounting items in financial statements
• Clarify what should be recorded and what shouldn't be.
• Ensure true and fair view of affairs of company.
• Ensure comparability and consistency of financial statement
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Unit - 4
(b) Money Measurement Concept : as per this concept only those transactions are
recorded in books of accounts which can be measured in terms of money. Money as
a common measuring unit can be a currency of any country i.e. * in India. Non-
monetary transactions are not included in book of accounts.
(c) Going Concern Concept : as per this concept business assumes to be establishes
for an indefinite period in future it will going to be liquidated in near future hence
business has unlimited life and its activities continue to happen in future.
(d) Periodicity Concept : it state that the long or unlimited life of business is divided
into certain time duration called accounting period or financial year at the end of
which financial statement are prepared to show the results of business and financial
position i.e. profit and loss account, balance sheet. Thus financial reporting at the
end of life of business is no use for managers and other concerned users of financial
statement. Periodical progress is of more utility for all users.
(e) The Cost Concept : cost concept states that assets are recorded in book of account
at their cost price not at the market value. The original cost or acquisition cost of
assets is shown in books of accounts also called historical cost. E.g. a company buy
a machine for 10 lakh but market value is 20 lakh then it recorded at cost price i.e. *
10 lakh. Similarly items that doesn't have any cost need not to be recorded i.e. self-
generated goodwill.
(f) Realisation Concept : when do we recognized the revenue ? At what point of time
we should recognize the revenue ? As recognition/measurement at different point of
time has significant impact on financial results of a particular accounting period.
There must be common measurement criteria relating to timing of recognizing the
revenue.
Realisation concept specify that revenues are recognize and recorded when they
have been realized hence revenues are recoded only when they actually earned by
enterprise or at a time when cash has been received.
(g) The Accrual Concept : as per the accrual concepts revenue are recoded in books
of accounts at the moment they earned weather received in cash or not. Similarly
expanses are recorded in the accounting period they incurred by enterprise weather
cash is paid or not. Hence the recognition of income and expenses doesn't depends
upon the receipt or payment of cash rather both are as the transaction happen.
(h) Matching Concept : it simply state about the matching of revenue and
expenditure for an accounting to which they actually belong to. Revenue and
expanses items shown in income statement must belong to the accounting for which
income is to be calculated. To calculate the net profit for an accounting period we
must only take into account those expenses an incomes related to that accounting
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Unit - 4
period. Thus the essence is revenue and expanses must be matched to the accounting
period for which income is going to be calculated.