Accounting Concepts andConventions – apk upload

Accounting Concepts and
Conventions

Accounting concepts and conventions interprets to those rules and principles which include different postulates, conditions and assumptions. These conceptions and conventions help to understand the accounting records in the same meaning and to get expected results to the owners, creditor employees and other parties related to business.

Including various Accounting experts opinion thereare the following concepts of Accounting-

(1) Business entity concept- It is considered in business entity concept that inspite of being total ownership and control on business, the entity of business is considered separate from the existence of its owners. Accounts of business are kept separately from the accounts of the owner.

While accounting the business and the owner are taken as two different parties. For example when an owner invests capital in business, it is taken as credit in owner’s personal account, which is called capital account. When the owner withdraws amount from business for personal expenses, it is debited to his drawing account and a difference is made between the expenses of business and its owner’s expenses. The expenses of business are debited to the concerned expenditure account and the expenses of owner are debited to his own account that is called drawing account. Thus transactions regarding for owner’s personal use are not recorded in the books of business. This concept means to write down anyntransaction by the views of business, not by the views of the owner. So the owner is taken as a different unit from business.

The owner’s benefits are taken as a liability of the business so it is written in liability side as other liabilities. From this concept an owner may find out on any certain date that how much amount they have to take from business and other parties also understand very well the financial structure of business to see the capital account and other accounts related to owner.

Business entity concept implements on all forms of business organisation as sale trade partnership, company. co-operative institution, etc. In short we can say that according to Accountancy business entity concept considersnthe owner and the business two different units and proves the necessity of accounting both of them as two different units.

(2) Dual aspect concept- Dual Aspect Concept is a very important concept of Accounting. According to this concept every business transaction has two aspects. It means every dealing affects two aspects. So all transactions of business are accounted as two sided view point. On the basis of this concept, for example; comes some assets in business, then on one hand the assets of business are increased, while on the other hand anyone effect of the following may be seen-

(A) If the assets are purchased in cash, there will be a decrease in cash amount. It means there is increase in assets but decrease in another. To write down this system in books the accounts of coming assets would be debited and the account of going assets would be credited.

(B) If the assets are purchased in credit, it will in-
crease in assets but on the other side it will increase the liabilities of vendors, and in accounting books the assets account would be debited and the vendor’s personal account would be credited. Dual Aspect Concept is based onDouble Entry System of Book-Keeping. This concept says that at any time the total assets of business are equivalent to its total liabilities and every increment or decrement in assets gives the same effect on its liabilities. Or we can say if a price makes an increment in assets or liabilities, the same price makes a decrement in assets or liabilities and the balance sheet thus always maintains a state of balance. It can be explained by this formula also Assets Capital + Liabilities + Retained Profits

(3) Accounting period concept- The business organisations are formed on the basis of a long period. The profitability of a business can be measured by comparing the starting and last capital at the end of business. But a businessman cannot wait till the end of business to know thengained profit or loss. Even though it is useless to know thenprofit and loss at the end of a business because it will be like a post martum of business only and there will be no necessity of following some creative steps to increase the profits.

So every businessman wants to know the gained profit and loss of his business periodically. Except businessman, the other parties who have their own interest in business as. creditors, share holders, employees; tax-officers, etc. also want to know the periodical results of business. So it is considered compulsory in this concept that each and every business should decide a definite period as its accounting period. Normally there are 12 months in this period and every year it starts from a certain date and ends one day before of that date. In business generally the accounting period according to calendar year was considered from 1st Jan to 31st Dec, financial year was considered from 1st April to 31st March, the co-operative year was considered from 1st Julynto 30th June etc. but in India Deepawali, Dashhara, Cheti Chand, Samvatsar, etc. were also accepted as Accounting year. But now the date 1st April to 31st March is made compulsory as an Accounting year.

(4) Going concern concept- It is considered in goingnconcern concept that the business would continue till a longnperiod. So the expenditures which are concerned to the present year are kept separate from the expenditures whichnwould affect during many following years. Defining the Going concern concept Kohler says that-” A business enterprise in operation, with the prospect of continuing operation in the future, its assets, liabilities, revenues, operatingncosts, personnel, policies and prospects is a concept basic to accounting of importance in the valuation of intangiblebassets and the depreciation of tangible and intangible assets.”

On the basis of the above given concept the expenditures are divided into capital and revenue and differed, revenue. The expenditure which are related only to the current business year are charged to the profit and loss account, and the capital expenditure are debited to the concerned assets account and those expenditure which are revenue in nature but due to being effective till the long term itsna definite part is debited to the profit and loss account everynyear, and the remained amount is shown as assets in balance sheet, are known as differed revenue expenditures. But if the period of business is one year or less than one year,bthen no difference is made between the capital expenditurenand revenue expenditure. On the basis of this concept fixed assets are shown in balance sheet after deducting depreciation. Their market price does not have much importance butnbeing the market price of current assets, it is taken undernconsideration.

The rule of showing the fixed assets on the basis ofbcost price and the current assets on the basis of cost price or market price (whichever is less) is taken in practice on the basis of this concept only.

(5) Money measurement concept- After the evolution of money all the financial activities are measured by money. So this concept is accepted in accounting also that only those business activities whose measurement is possible in money are included in Accounting. The transactions which can not be measured in money can not be included innthe books of accounting, even though they are extremely important for business. There are a lot of events in business which directly or indirectly affect the earning capacity of business but though they can not be expressed in money terms, so are not recorded in business accounts books. For instance employees’ carelessness and disliking towards job, manager’s mutual disputes, conditions of work, qualities of produced things etc. can not be expressed in money, so they don’t have any accounting record.

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