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Accounting Principles, Concepts

and Conventions
What do you mean by Accounting Principles.

According to the American Institute of Public


Accountants Accounting principles are the general
laws or rules adopted or professed as a guide to action.
It is a basis of conduct or practice.

Characteristics of Accounting principles:


These rules are based on the custom, usages and
traditions.
These principles are dynamic and not fixed or rigid.
They are designed to make accounting data provide
objectivity, application, usefulness and simplicity to its
users.

1.
2.
3.

Kinds of Accounting
Principles
Concepts
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Entity Concept
Cost Concept
Going Concern Concept
Accounting Period Concept
Money Measurement
Dual Aspect Concept
Accounting Equivalent
Matching Principle
Verifiable Objects
Realization Concept
Capital Concept
Accrual concept
True legal position

Conventions

1.
2.
3.
4.

Disclosure Convention
Materiality Convention
Consistency Convention
Conservation Convention

Double Entry System

Meaning Of Double Entry System:


According to William Pickles Every business
transaction has two fold effects and it affects two
accounts.In order to keep a complete record of a
transaction, one account is bound to be debited and the
other is bound to be credited. Recording this two-fold
effect of each transaction is called as Double Entry
System.

Characteristics Of Double Entry System:

1.
2.
3.
4.
5.

Effects on two accounts or parties.


Simultaneous recording
Contra-position of two accounts
Definite rules of recording
Two aspects of transaction.

Objective of Double-Entry System


1. To facilitate the verification of accuracy of
accounting.
2. To know the position of profit or loss and the
financial results with the help of Trial Balance.
3. To know the progress of the business at the end of
each accounting period.
4. To check and control misappropriation and
defalcation by employees.
5. To have proper and systematic record of business
for future reference.

Stages of recording under DES

The entire accounting process is divided into 3


main stages:

1.

Original Record: The books in which the transaction is recorded


for the first time is called as Book of Original Entry. It is also known
as Journal.

2.

Classification: All the transactions recorded in the journal are


sorted into different accounts. The information pertaining to particular
individual or party or item in different dates are recorded under one
head identified by the name of the person, party or item concern, (also
called as account). Such a recording is called Posting in
Ledger.Ledger is also called as the Book of Final Entry.

3.

Final Accounts: After recording and classification, a summary is


drafted to ascertain the position of the business. In this respect, Trial
balance, Trading& Profit and Loss a/c and Balance Sheet is prepared.
These documents together are termed as Final Accounts .

What do you mean by Accounts

Accounts denotes the date-wise record of all the dealings pertaining to a


particular person, party, property, goods, services, expenses, income, gains
and losses in one head at one place according to certain rules.

Types of Accounts
Personal Accounts

Natural
Person

Artificial
Person

Impersonal Accounts

Representative
person

Tangible Assets

Real
Accounts

Nominal
Accounts

Intangible Assets

Journal

Meaning of Journal:

According to RollandJournal is the book of


original records in which a businessman enters all
his daily transactions, it shows which account is
debited and which one is credited.
According to L.C.Copper Journal is the book of
original record which is kept for the purpose of
sorting and classification of transactions, so that the
same may be conveniently recorded later on in the
ledger.
The process of recording the transaction in the
books of original records is called journalising.

Specimen/Proforma Of Journal
Journal Entries in the Books Of --------Date

Particulars

L.
F.

Debit

Credit

(Rs.)

(Rs.)

Explanation of the profoma:

Journal contains 5 columns.


1. Date: In this column the date on which transaction takes
place is entered.

2. Particulars: The transaction of the business is recorded


in the particulars column based on the rules of journalising.
Points to be remembered for recording in the particulars
column: -

a)
b)
c)

d)

e)

The names of 2 accounts affected in the transaction are


written in two lines.
In the 1st line, account which is to be debited is written and
the abbreviation for debit Dr.is suffixed.
In the second line, the recording starts by leaving a little
space from the margin and than the account to be credited
is written and it begins with the word To.
Below the credit account in the next line a short
description, called as narration of the transaction is
written in the brackets starting with either Being or
For.
In the end after the narration a horizontal line in drawn in
the particulars to signify the end of the transaction.

3.

Ledger Folio (L.F.): Folio means page. Every transaction entered


in the journal is posting in the ledger. So in this column the number of
page of the ledger, wherein the transaction has been posted, is entered.

4.

Debit Amount: This column carries the amount against the account
which has been debited.

5.

Credit Amount: This column carries the amount against the


account which has been credited.

Balancing of the Journal

The total of both the debit and the credit side of each page
is calculated and carried forward to the next page.
The balance at the end of the page is indicated by c/f
which means carried forward Or by b/f as brought
forward.
The balance in the beginning of the next page is indicated
by b/d which means bought down.

Rules Of Debit and Credit


Real Account

Dr.
What comes in
Cr.
What goes out

Personal Account

Dr.
The receiver
Cr.
The giver

Nominal Account

Dr.
All expenses
& losses
Cr.
All incomes &
gains

Journal Entries

Journalise the following transaction: 1.


2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

1st Jan: Commenced business with cash Rs. 1,00,000/-, stock Rs. 5,000/and furniture Rs.13,000/3rd Jan: Goods purchased from Hari Rs.8,000/5th Jan: Sold goods to Narendra Rs.4,000/6th Jan:Goods for Rs.2,000/- bought from Hari was returned.
7th Jan: Sold goods to Zain for cash Rs.6,000/9th Jan: Goods worth Rs.1,000/- sold to Narendra were returned by him.
10th Jan: Paid salary to Ashok Rs.1,500/11th Jan: Rent paid in advance Rs.500/12th Jan: Paid to Hari Rs.5950/- in full settlement of his account.
13th Jan: Received cash from Narendra, after a discount of Rs100/-, in
full settlement of his account.
14th Jan: Sunil, a debtor for Rs. 2,000/- was declared insolvent and only
45paise in a rupee could be recovered from his private estate.
15th Jan: Withdrew goods of Rs.300/- and cash Rs.500/- for private use.

13.
14.

15.

16.
17.
18.
19.
20.

18th Jan: The salary for 3 months amounting to Rs.1,200/- is due ( not
yet paid)
19th Jan: Sold to Mohit goods worth Rs.5,000/- at 10% trade discount,
it was also decide to offer him a discount of 2% at the time of payment.
The payment was made on 25th Jan.
20th Jan: Goods worth Rs.300/- stolen by the employees, goods worth
Rs.500 was given as charity and goods worth Rs. 400/- distributed as
free samples.
21st Jan: Purchased Office equipments for Rs.8,000/-, Land Rs.15,000/and Machinery Rs.20,000/31st Jan: Depreciation on furniture @ 10%p.a.
Opened a current a/c with bank Rs. 2000
Received Interest in advance for three months Rs. 400
Paid in wages by cheques Rs. 500