ACCOUNTS 11TH-Notes.pdf

These principles are classified into two categories 1

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treatment to various items of assets, liabilities, expenses, income, etc. These principles are classified into two categories: 1. Accounting Concepts; 2. Accounting conventions. 1. Accounting Concepts: Accounting Concepts are the basic assumptions or fundamental propositions within which accounting operates. 2. Accounting conventions: Accounting Conventions are the outcome of accounting practices or principles being followed by the enterprises over a period of time. FEATURES OF ACCOUNTING PRINCIPLES 1. Accounting Principles are Man-Made: Accounting Principles are man-made and, therefore, they do not stand the scrutiny like the principles of natural science. 2. Accounting Principles are Flexible: Accounting Principles are not rigid but flexible. Whenever a situation arises that requires solution, accountants arrive at a reasoned and reasonable decision which gradually becomes the accepted Accounting Principles. 3. Accounting Principles are Generally Accepted: Accounting Principles are the bases and guidelines for accounting and are generally accepted. The general acceptance of an Accounting Principle usually depends on how it meets three criteria: relevance, objectivity and feasibility. (i) Relevance: Accounting Principles are relevant if they result in information that is useful to the users of accounting information.
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19 Address: Plot No 420, Behind Shopprix Mall, Vaishali Sector 5, Ghaziabad 201010 M: 9999907099, 9818932244 O: 0120-4130999 Website: , (ii) Objective: Accounting Principles are objective if they are not influenced by the personal bias of the persons preparing the accounting information. (iii) Feasible: Accounting Principles are feasible if they can be applied without undue complexity and cost. Q.2. What is the Necessity of Accounting Principles and Fundamental Accounting Assumptions ? Ans. Accounting information is better understood if it is prepared following the set of Accounting Principles uniformly. It means the same Accounting Principles are followed by all entities in preparing their final accounts. The fundamental accouting assumptions are: - 1. Going Concern Assumption: According to this assumption, it is assumed that business shall continue for a foreseeable period and there is no intension to close the business or scale down its operations significantly. 2. Consistency Assumption: According to the Consistency Assumption, accounting practices one selected and adopted, should be applied consistently year after year. 3. Accrual Assumption: According to the Accrual Assumption, a transaction is recorded in the books of accounts at the time when it is entered into and not when the settlement takes place. Q.3. What are the Principles of Accounting ? Ans. Accounting Principles are:- 1. Accounting Entity or Business Entity Principle : According to the Business Entity principle, business is considered to be separate and distinct from its owners. Business Transactions, therefore, are recorded in the books of accounts from the business point of view and not from that of the owners.
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