Prin. of Acct II - Ch-3-Accounting Concepts & Principles, Liabilities and Payroll-1.pdf

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St. Mary’s University, Department of AccountingLecture Notes on Principles of Accounting-II, Chapter III. Compiled By: Kassaye TujiP. 1PRINCIPLES OF ACCOUNTING IIChapter33.1 CONCEPTS AND PRINCIPLES OF ACCOUNTINGDevelopment of Concepts and Principles:Accounting principles have been developed by individuals to help make accounting data more usefulin an ever-changing society.Theyrepresentthe best possible guides, based on reason, observation,and experimentation, to the achievement of the desired results. Practicing accountants and accountingeducators are responsible for the development of accounting principles.These principles are alsoinfluenced by business practices and customs, ideas and beliefs of the users of the financial statements,governmental agencies, stock exchanges, and other business groups.The accounting conceptsexplain which, when, and how financial elements and events should berecognized, measured, and reportedby the accounting system.Generally Accepted Accounting Principles (GAAP):GAAP refer to specificfundamental beliefs, on the basis of reasons, demonstrated performance andgeneral acceptance that are generally essential toguide the practices of accounting and reporting forthe financial affairs of an economic entityincluding governmental, non-governmental, business andnon-business organizations.Regardless of the nature of the economic entity they affect, these principles are collectively known asGenerally Accepted Accounting Principles (GAAP). GAAP includegeneral concepts, assumptions,principles as well as specific accounting and reporting procedures, policies and methodssuch asinventory valuation, revenue recognition, depreciation computation, etc.International Financial Reporting Standards (IFRS)To make comparisons across companies a uniform set of principles, rules, procedures, standards andguidelines of financial accounting and reporting are required. The International Accounting StandardsBoard (IASB) has set financial reporting standards that guide entities to prepare reports. Thesestandards are International Financial Reporting Standards (IFRS).Today, the world’s financial markets are borderless. Companies seek capital at the best price whereverit is available. Investors and lenders seek investment opportunities wherever they can get the bestreturns commensurate with the risks involved. To assess the risks and returns of their variousinvestment opportunities, investors and lenders need financial information that is relevant, reliable andcomparable across borders.
St. Mary’s University, Department of AccountingLecture Notes on Principles of Accounting-II, Chapter III. Compiled By: Kassaye TujiP. 2The use of one set of high quality standards by companies throughout the world improves thecomparability and transparency of financial information and reduces financial statement preparationcosts. When the standards are applied rigorously and consistently, capital market participants receive

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Balance Sheet, Revenue, Generally Accepted Accounting Principles, Department of Accounting, St Mary s University, Kassaye Tuji

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