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Conceptual Framework of Accounting

This document outlines key concepts and principles of accounting frameworks, including: - Financial statements must conform to generally accepted accounting principles (GAAP) which have evolved over time. - The economic entity concept views a business as separate from its owners. - The going concern concept assumes an entity will continue operating indefinitely. - The accrual system records transactions when they occur regardless of cash received or paid. - The matching concept matches revenue earned to expenses incurred in the same accounting period. - Assets are recorded at historical cost and financial statements are prepared for specific time periods under the time period concept.

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Ramji Tripathy
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27 views5 pages

Conceptual Framework of Accounting

This document outlines key concepts and principles of accounting frameworks, including: - Financial statements must conform to generally accepted accounting principles (GAAP) which have evolved over time. - The economic entity concept views a business as separate from its owners. - The going concern concept assumes an entity will continue operating indefinitely. - The accrual system records transactions when they occur regardless of cash received or paid. - The matching concept matches revenue earned to expenses incurred in the same accounting period. - Assets are recorded at historical cost and financial statements are prepared for specific time periods under the time period concept.

Uploaded by

Ramji Tripathy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CONCEPTUAL FRAMEWORK FOR ACCOUNTING

SOME PRINCIPLES AND CONCEPTS


 Generally Accepted Accounting Principles: Financial statements must conform to
GAAP evolved over time in response to the need
 Economic Entity Concept: Business or entity is separate from the owners of the entity.
Entity is viewed as an economic unit.
 Going Concern Concept: Entity that is accounted for is not in the process of
liquidation and that will continue indefinitely into the future.
 Accrual System: Transactions are recorded as and when they occur irrespective of the
fact whether cash has been received or paid
 Matching Concept: While measuring periodic financial results, revenue earned during
an accounting period is matched with expenses incurred (to earn the revenue) in the
same accounting period
SOME PRINCIPLES AND CONCEPTS
 Cost Concept: Assets are recorded at the cost paid to acquire them.
Financial statements are prepared on historical cost basis. Historical
cost assumption is an extension of going concern assumption.
 Money Measurement: Transactions and events that can be measured in

monetary terms are recorded.


 Time Period Concept: Financial statements are prepared for a specific

time period.
 Conservatism: Accountant must select the measurement with the least

favorable effect on net income or financial position


SOME PRINCIPLES AND CONCEPTS
 Realization Concept - The ‘actual revenue earned’ during the accounting period is
recorded in the books, irrespective of the fact, whether the cash is received or not
 Materiality: Information is material if its misstatement could influence the decisions
of users taken on the basis of financial statements
 Relevance: It is the capacity of information to make a difference in a decision-
making process
 Reliability: Accounting information is reliable to the extent its users can depend on it
 Understandability: Financial information will be useful, if they are understandable
 Comparability: Financial information must be comparable between or among
companies
 Consistency Principle: Accounting policies are to be consistently
followed from one period to another
 Unless

 A statute makes it necessary to comply with provisions of certain law

 It is mandatory to adopt the provisions of certain applicable Ind As or


IFRS
 If management feels that the changes are necessary for better
presentation of Financial statements

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