Theory base of Accounting
The theory of accounting comprises of basic
A. Basic Assumptions,
B. Basic Accounting Principles,
C. Modifying principles and
D. Accounting Standards.
Let us discuss in detail:
A. BASIC ASSUMPTION
They are the foundation on which the accounting system is based. They are natural and not forced one, which is developed bu customs, traditions, beliefs and practices by accounting practitioners. Following are the basic accounting assumption:
1. Accounting entity
2. Money measurement
3. Going concern
4. Accounting period
1. Accounting entity:
This is also known as Separate Entity Concept. According to this assumption, business is treated as a separate entity from its owners.Accounts are prepared to give information about the business and about those who own it. A distinction is made between business transactions, which helps to give the true picture of the business.
2. Money measurement:
Accounting to this assumption only those events and transactions are recorded in accounting which can be expressed in monetary terms.If an information which cannot be expressed in money terms does not find a place in accounting records.
3. Going concern:
This concept assumed that the business will last for a long period of time. This concept is very important for the presentation of financial statements. This assumption viewed that the business continue its operation for the foreseeable future.
4. Accounting period:
This concept point out that, after a time interval the business man must stop and see how things are going on in the business.This time interval which is used by the business to prepare financial statements is called Accounting periods.
B. ACCOUNTING PRINCIPLES
Accounting
principles are the general law and rules which adopted by the
accountants as a guide to action. Following are the principles of
accounting:
1. Duality Principle
2. Historical Cost Principle
3. Verifiability and objectivity Principle
4. Revenue Recognition Principle
5. Matching Principle
6. Full Disclosure Principle
1. Duality Principle:
1. Duality Principle
2. Historical Cost Principle
3. Verifiability and objectivity Principle
4. Revenue Recognition Principle
5. Matching Principle
6. Full Disclosure Principle
1. Duality Principle:
