These principles are known as generally accepted accounting principles. Accounting is based on a number of rules or conventions, which have evolved over time. These concepts and conventions have been evolved after centuries of experimentation and their use have, now, become accepted principles. Like all other professions, accounting has also developed its own concepts and conventions. Every profession has developed its own jargon and vocabulary. ![]() This objective can be achieved when there is certain common agreement and compliance about the accounting principles. The chief objective behind the accounting principles is that the accounting statements should be both reliable and informative. Accounting principles may be defined as those rules of action or conduct, which are adopted by the accountants, universally, while recording the transactions. Accounting principles are the rules based on assumptions, customs, usages and traditions for recording transactions.ģ Generally Accepted Accounting Principles GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Transactions are recorded in accounts, following certain fundamentals, concepts and conventions, which are called as Generally Accepted Accounting Principles. Hence, a definite need has been felt to follow uniform accounting principles from the stage of recording the transactions to the stage of preparing financial statements. Unless the accounting transactions are recorded according to certain definite principles, it becomes difficult to maintain uniformity of understanding. If every business follows its own accounting practices, the final accounts may not be understandable to all such parties in a similar and uniform manner. There are several parties interested in their financial statements ranging from shareholders, creditors, employees and Government to potential investors. In modern days, joint stock companies, be it private limited or public limited, has become the normal form of business. In the case of joint stock companies, the financial statements are public documents. Their financial statements are personal and confidential character, which are not shared as public documents. It has been sufficient, if they have understood the accounting records. 2.2 NEED OF ACCOUNTING PRINCIPLES In the olden days, the common form of business has been sole proprietor or partnership firm. These are always kept in mind when an accounting transaction is recorded. However, accountants have come to an agreement about some fundamental principles, concepts and conventions. There are differences of views on many matters. While preparing the accounts, the accountant is often faced with the problem as to how exactly a transaction or event is to be recorded in the books of accounts and shown in the Profit and Loss account and Balance Sheet. Also as a citizen, we are supposed to obey the law of this country and so on. As a citizen of India, we are guided by certain rules and regulations. Overtaking the vehicle, either two-wheeler or four-wheeler, is to be made on the right side, alone. Some of the conventions are as follows: In India, we always drive on the left hand side of the road. Most of the activities, be it official, social or personal, are guided by a set of certain rules or conventions. ![]() When we write or speak, we follow the principles of grammar. Equally, every language has grammar of its own. ![]() Both the speaker and listener should mean the same for the words used. ![]() Language can be understood only when words used by us convey the same meaning to the listener. When we speak in any language, our intention is our ideas are to be understood by others. 1 Generally Accepted Accounting Principles CHAPTER 2 Introduction Need of Accounting Principles Generally Accepted Accounting Principles Characteristics of Accounting Principles Objectivity Application Reliability Feasibility Understandability Accounting Concepts Separate Entity Concept Money Measurement Concept Dual Aspect Concept Going Concern Concept Cost Concept Accounting Period Concept Periodic Matching of Costs and Revenues Concept Realisation Concept Accounting Conventions Conservatism Consistency Materiality Full Disclosure Check Your Understanding Descriptive Questions Interview QuestionsĢ 24 Accounting for Managers 2.1 INTRODUCTION Accounting is the language of business.
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