четверг, 18 июня 2015 г.

Principles of Accounting and Accounting Assumptions



Within the modem world no business can pay for to keep secretive because various parties such as creditors, employees, taxation authorities, investors, public and government etc., are interested to learn about the affairs of the business. Affairs of your business might be studied mainly by consulting final accounts along with the balance sheet of the particular business. Final accounts and the balance sheet are end products of book-keeping. As a result of need for these statements it became necessary for the accountants to build up some principles, concepts and conventions which can be thought to be fundamentals of accounting. Such fundamentals having wide acceptance give reliability and creditability on the financial statements prepared from the accountants. The requirement for 'generally accepted accounting principles' arises for a couple of reasons: First, to get logical and consistent in recording the transactions and second, to conform to, the established practices and procedures.

There is no agreement on the list of accountants as regards the basic concepts of accounting. There is no uniformity in generally accepted accounting principles (GAPP). The terms-axioms, assumptions, conventions, concepts, generalizations, methods, rules, doctrines, techniques, postulates, standards and canons are used freely and inconsistently within the same sense.

Principles

"An over-all law or rule, adopted or professed as helpful tips for action, a settled ground or basis of conduct or practice." This definition given by dictionaries comes nearest to describing what most accountants mean from the word 'Principle'. Care needs to be taken to really make it clear that as placed on accounting practice, the world principle, is not going to connote a rule that there can be no deviation. An accounting principle is not really a principle inside the sense it admits of no conflict along with other principles.

Postulates

Mean to assume without proof, to take for granted or positive consent, a situation assumed as self- evident. Postulates are assumptions but they are not arbitrary deliberate assumptions but generally recognized assumptions which reflect the judgment of 'facts' or trend or events, assumptions which have been borne outside in past by facts supposed by legal institutions leading them to be enforceable at some level.

Doctrines

Mean principles of belief: exactly what the scriptures teach on any subject. It refer to a well established principle propagated by a teacher which happens to be followed in strict faith. However in accounting practice, no such doctrine necessary followed nevertheless the word denotes the typical principles or policies being followed.

Axiom

Denotes an announcement of truth which cannot be questioned by anyone.

Standards

Make reference to the cornerstone expected in accounting practice, under different circumstances. In Indian context, the Institute of Chartered Accountants of India (ICAI) constituted an Accounting Standards Board on 21st April, 1977. The key purpose of ASB is to formulate accounting standards taking into account the applicable laws, customs, usages and business environment.

Accounting Assumptions ( Rob peers information )

The International Accounting Standards Committee (lASC) plus the Institute of Chartered Accountants of India (ICAI) treat (vide IAS-I & AS-I) the next since the fundamental accounting assumptions:

(1) Going concern

Inside the ordinary course, accounting assumes how the business will continue to exist and continue its operations for an indefinite period in the future. The entity is assumed to be functioning sufficiently long to handle its objects and plans. The values connected to the assets will likely be based on its current worth. The assumption would be that the fixed assets usually are not designed for re-sale. Therefore, it can be contended that the balance sheet which can be prepared based on record of facts on historical costs cannot show the genuine or real amount of the concern with a particular date. The underlying principle there is the fact that earning power and never the cost is the basis for valuing a continuing business. The business is to continue indefinitely along with the financial and accounting policies are followed to keep up the continuity of the business unit.

(2) Consistency

There has to be uniformity in accounting processes and policies in one period to a different one. Material changes, if any, should be disclosed though there is certainly improvement in technique. A big difference of method from a period to another one will affect the result of the trading materially. Provided that the accounting procedures are followed consistently from year to year the results disclosed in the financial statements will likely be uniform and comparable.

(3) Accrual

Accounting efforts to recognize non-cash events and circumstances while they occur. Accrual is concerned with expected future cash receipts and payments: this is the accounting procedure for recognizing assets, liabilities or income for amounts expected to be received or paid from now on. Common examples of accruals include purchases and sales of services or goods on credit, interest, rent (not paid), wages and salaries, taxes. Thus, we make record of most expenses and incomes relating to the accounting period whether actual cash is disbursed or received or perhaps not. If a fundamental accounting assumption (i.e. Going concern, consistency and accrual) will not be followed (inside the preparation of financial statements) the fact ought to be disclosed. [AS-I para 27].

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