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    Gaap

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    kubsresourcecentre

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    © All Rights Reserved
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    Gaap

    Uploaded by

    kubsresourcecentre
    2 views21 pages

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    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    2 views21 pages

    Gaap

    Uploaded by

    kubsresourcecentre

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 21

    ACCOUNTING

    Accounting is the of recording


    art
    summarizing, reporting ,analyzing
    financial ,and process
    transactions
    recording .of businessThe of
    transactions is called accounting.
    GAAP (Generally Accepted
    Accounting Principles):
    🠶 GAAP refers to the rules or guidelines adopted for recording and reporting of
    business transactions, In order to bring uniformity in the preparation and
    presentation of financial statements.
    GAAP
    Principles:
    The GAAP principles are divided into two categories:

    1. Accounting Concepts: Accounting Concepts are basic assumptions or conditions


    upon which science of accounting is based.

    2. Accounting Conventions: Accounting Conventions include those customs and


    traditions which are followed up by an accountant while preparing a financial
    statement.
    GAAP PRINCIPLES

    🠶 Business Entity concept 🠶 Matching concept


    🠶 Money measurement 🠶 Accrual
    🠶 Going concern 🠶 Full disclosure
    🠶 Accounting period 🠶 Consistency
    🠶 Cost concept 🠶 Conservatism
    🠶 Dual aspect 🠶 Materiality
    🠶 Revenue recognition
    BUSINESS ENTITY CONCEPT

    This concept assumes that owners and


    business are two different entities.
    It means that for the purpose of
    accounting, the business and its
    owners are to be treated as two
    separate entities.
    MONEY MEASUREMENT CONCEPT

    states that only those transactions and happenings in an organization which can be
    expressed in terms of money such as sale of goods or payment of expenses or
    receipt of income, etc. are to be recorded in the book of accounts
    Going Concern Concept
    🠶 assumes that a business firm would
    continue to carry out its operations
    indefinitely, i.e. for a fairly long period
    of time and would not be liquidated
    in the foreseeable future. This is an
    important assumption of accounting
    as it provides the very basis for
    showing the value of assets in the
    balance sheet.
    Accounting Period Concept

    🠶 Accounting period refers to the span


    of time at the end of which the
    financial statements of an enterprise
    are prepared, to know whether it
    has earned profits or incurred
    losses during that period and what
    exactly is the position of its assets
    and liabilities at the end of that
    period.
    Cost Concept

    🠶 The cost concept requires that all assets are recorded in the book of accounts at
    their purchase price, which includes cost of acquisition, transportation, installation
    and making the asset ready to use.
    Dual Aspect Concept
    🠶 Dual aspect is the foundation
    or basic principle of accounting.
    This concept states that every
    transaction has a dual or two-
    fold effect and should therefore
    be recorded at two places. In
    other words, at least two
    accounts will be involved in
    recording a transaction
    Revenue Recognition (Realization)
    Concept
    🠶 The concept of revenue recognition requires that the revenue for a business
    transaction should be included in the accounting records only when it is realized
    Matching Concept

    🠶 The process of ascertaining the amount of profit earned or the loss incurred
    during a particular period involves deduction of related expenses from the
    revenue earned during that period.
    Full Disclosure Concept
    The principle of full disclosure requires
    that all material and relevant facts
    concerning financial performance of
    an enterprise must be fully and
    completely disclosed in the financial
    statements and their
    accompanying footnotes.
    Consistency Concept

    🠶 This principle states that accounting policies and practices


    followed by enterprises are uniform and are consistent over the period
    of time.
    Conservatism Concept

    🠶 The concept of conservatism requires that profits should not to be recorded until
    realised but all losses, even those which may have a remote possibility, are to be
    provided for in the books of account.
    Materiality Concept

    🠶 The concept of materiality requires that accounting should focus on material


    facts. The materiality of a fact depends on its nature and the amount involved.
    Objectivity Concept
    🠶 The concept of objectivity requires
    that accounting transaction should be
    recorded in an objective manner,
    free from the bias of accountants
    and others. This can be possible
    when each of the transaction is
    supported by verifiable documents
    or vouchers
    Accounting Conventions
    1.Convention of disclosure:
    o Financial statements should disclose all material
    information clearly to
    the reader.
    o State the fact of change in accounting policies and methods
    (if any)
    2.Convention of consistency:
    o Same accounting principles for preparing financial
    statements for different periods.
    o Policy once adopted must not be changed.
    o Only be changed by showing the fact in the annual report.
    o For e.g. - Depreciation
    3. Convention of conservatism:
    o Cautious approach or policy of ‘’Play safe’’.
    O Be pessimistic.
    O All losses must be provided but profits should not be anticipated.
    O Possibility of loss taken in to account at the earliest.

    O Prospect of profit –ignored until it does not profit–ignored until it does


    not
    materialise.
    4. Convention of
    materiality:
    oOnly significant transactions
    recorded. oInsignificant
    transactions should find no place
    in the books of accounts.
    Accounting Equation

    • In every business transaction, one aspect represents the assets


    or expenses and other represents the claim or income and
    these two aspects are always equal. This approach generates
    the concepts of Accounting equation, which can be
    summarized as below:

    Liabilities = Assets (External Liabilities + Capital = Assets)

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