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Financial Accounting Accounting Concepts and Conventions

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Fabulous One (Karthik)
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9 views8 pages

Financial Accounting Accounting Concepts and Conventions

Fac

Uploaded by

Fabulous One (Karthik)
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Accounting:

Accounting Concepts
and Conventions
Financial accounting is the systematic process of recording, analyzing,
and reporting a company's financial transactions to provide stakeholders
with a clear understanding of its financial health and performance.

KA by Karthik P
Accounting Principles
Fundamental Principles Ethical Principles Regulatory Principles

The core principles that guide Principles that ensure Principles mandated by
the practice of accounting, accounting practices are governing bodies to ensure
such as the accrual basis, transparent, accurate, and consistent and comparable
matching, and the concept of adhere to professional financial reporting, such as
materiality. standards, such as objectivity, GAAP and IFRS.
integrity, and confidentiality.
Accounting Concepts

1 Entity Concept 2 Going Concern


The business is treated as a separate and The assumption that the business will
distinct economic unit from its owners or continue to operate for the foreseeable
managers. future.

3 Monetary Unit 4 Time Period


Financial transactions are recorded and The accounting cycle is divided into
reported in the standard currency of the specific time periods, such as a fiscal year.
country.
Accounting Conventions
Historical Cost Conservatism
Assets are recorded at their original Accountants should err on the side of
purchase price, not their current market caution when making judgments about
value. uncertain future events.

Consistency Full Disclosure


Accounting methods and policies should be All material information about a company's
applied consistently over time for financial position and performance must be
comparability. reported.
Accrual Basis of Accounting
1 Revenue Recognition
Revenues are recorded when earned, not when cash is received.

2 Expense Matching
Expenses are recorded in the same period as the related revenues.

3 Asset and Liability Recording


Assets and liabilities are recorded when they are incurred, not when cash is
exchanged.
Matching Principle
Revenues
Revenues are recognized in the period they are earned.

Expenses
Expenses are recognized in the period they are incurred to generate those
revenues.

Matching
The matching principle ensures that revenues and their associated expenses
are reported in the same accounting period.
Materiality and Conservatism

Materiality Conservatism
Information is considered material if it could Accountants should err on the side of caution
influence the decisions of users of the financial when faced with uncertainty to avoid
statements. overstating assets and income.
Consistency and Full Disclosure
Consistency Accounting methods and policies should be
applied consistently over time to ensure
comparability.

Full Disclosure All material information about a company's


financial position and performance must be
reported.

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