accounting tutorial

1. Accountancy Prof. T.S. Grewal, The icon on Accounts Accounting Concepts Presentation By : Vinod Kumar (PGT Commerce) The Lawrence School Sanawar E-mail : vinod0050@yahoo.com T. S. Grewal's Double Entry Book Keeping

2. Business Entity concept: According to the Business Entity Concept, 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 owners. Owners being considered separate and distinct from business they are considered creditors of the business to the extent of their capital. T. S. Grewal's Double Entry Book Keeping

3. Money Measurement concept: According to the money measurement concept, transactions and events that can be measured in money terms are recorded in the books of accounts of the enterprise. In other words, money is the common denominator in recording and reporting all transactions. Consider that an enterprise has Rs.10,000 cash, 6 tonnes of raw material, 6 trucks and 10,000sq.yards land. These assets cannot be added and shown in the financial statements unless their monetary value is ascertained. T. S. Grewal's Double Entry Book Keeping

4. Going Concern Concept: According to the Going Concern Concept it is assumed that business shall continue for an indefinite period and there is no intention to close the business. It is because of this concept that a distinction is made between a capital expenditure,i.e., expenditure that will render benefit for a long period and revenue expenditure, i.e., one whose benefit will be exhausted quickly, say, within the year. On the basis of this concept, fixed assets are recorded at their original cost and depreciated in a systematic manner without reference to their market value. T. S. Grewal's Double Entry Book Keeping

5. Accounting period concept : According to the accounting period concept, the life of an enterprise is broken into smaller periods so that its performance is measured at regular intervals. The accounts of an enterprise are maintained following the going concern concept. Meaning the enterprise shall continue its activities in the foreseeable future. There are two accounting periods : 1. Calendar year 2. Financial Year. T. S. Grewal's Double Entry Book Keeping

6. Cost Concept: According to the Cost Concept, an asset is recorded in the books of accounts at the price paid to acquire it and the cost is the basis for all subsequent accounting of the asset. Asset is recorded at cost at the time of its purchase but is systematically reduced in value by charging depreciation. The market value of an asset may change with the passage of time but for accounting purposes it continues to be shown in the books of accounts at its book value. T. S. Grewal's Double Entry Book Keeping

7. Dual Aspect Concept: according to the Dual Aspect Concept, every transaction entered into by an enterprise has two aspects, a debit and a credit of equal amount. Simply stated for every debit there is a credit of equal amount in one or more accounts. It is also true vice versa. For Example, Rahul starts a business with a capital of Rs.1,00,000. There are two aspects to the transaction. On one hand. The business has an asset of Rs.1,00,000 (cash) while on the other hand, it has a liability towards Rahul of Rs.1,00,000 (Capital of Rahul). Thus we can say Capital ( Equities) = Cash (Asset) T. S. Grewal's Double Entry Book Keeping

8. Revenue Recognition Concept : According to the Revenue Recognition Concept, revenue is considered to have been realized when a transaction has been entered into and the obligation to receive the amount has been established. It is to be noted that recognizing revenue and receipt of an amount are two separate aspects. Example: An enterprise sells goods in Feb.2010 and receives the amount in April 2010. Revenue of this sales should be recognized in Feb.2010 i.e., when the goods are sold. It is so because the legal obligation has been established (upon sales) in Feb.2010. T. S. Grewal's Double Entry Book Keeping

9. Matching concept: According to the matching concept, cost incurred to earn revenue should be recognized as expense in the period when revenue is recognized as earned. Under this concept the expenses for an accounting period are matched against related revenues. Since the accounts are usually prepared on accrual basis. The expenses incurred in an accounting period are matched with the revenues recognized in that period. T. S. Grewal's Double Entry Book Keeping

10. Accrual Concept: According to the Accrual Concept, a transaction is recorded at the time when it takes place and not when the settlement takes place. The concept is particularly important because it recognizes the assets, liabilities, incomes and expenses as and when transactions relating to it are entered into. Under this concept profit is regarded as earned at the time the goods or services are sold to a customer, i.e., the legal title is passed to the customer, who, in turn, has an obligation topay for them. Similarly, expense is regarded as spent when the goods or services are purchased and an obligation to pay for them has been assumed. T. S. Grewal's Double Entry Book Keeping

11. Verifiable objective concept: Verifiable Objectives Concept holds that accounting should be free from personal bias. Measurements that are based on verifiable evidences are regarded as objective. It means all accounting transactions should be evidenced and supported by business documents. These supporting documents are cash memo, invoices, sales bills, etc., and they provide the basis for accounting and audit. T. S. Grewal's Double Entry Book Keeping

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