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BBA/BCOM 2 All right are reserved with CU-IDOL Basic Accounting Course Code: BBA101/BCM101 Semester: First e-Lesson: 3 SLM Unit: 3 www.cuidol.in Unit-3(BBA101/BCM-101)

BASIC ACCOUNTING 33 OBJECTIVES INTRODUCTION To discuss accounting framework In this unit we are going To get familiarized with the role of accounting in to learn about the Type of business.. accounting Principles. To be able to apply accounting principles, concepts and Under this you will be conventions to record business transactions culminating into final accounts. able to understand Basic concept, principles and modifying principles. www.cuidol.in Unit-3(BBA101/BCM-101) INSTITUTE OF DISTANACEll ArNigDhtOaNrLeINreEsLeErAvRedNIwNiGth CU-IDOL

TOPICS TO BE COVERED 4 Introduction. Type of accounting Principles-Basic concept Principles and modifying principles Importance and Limitation www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Principles 5  Accounting principles are man made.  “A general law or rule, adopted or professed as a guide to action, a settled ground or basis of conduct or practice.”  Accounting principles are uniform practices which entities follow to record, prepare and present financial statements. An entity must prepare its financial statements as per acceptable accounting principles in order to present true and fair view of state of affairs of entity. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Features of accounting 6 principles  Relevance or usefulness: - Satisfies the needs of those who use it. - Able to provide useful information  Objectivity : - Based on facts and figures - No scope for personal bias  Feasibility : - Principles should be practicable - Easy to use otherwise their utility will be limited www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Generally Accepted 7 Accounting Principles (GAAP)  The very basic objective of accounting is to provide financial information to various interested groups for the purpose of decision making.  It is of utmost importance that uniformity and consistency is maintained in preparing such financial statements.  If business enterprises are left to have their own notion about the accounting terms like assets, liabilities, revenue, income and expense etc. it will lead to utter chaos and confusion.  To have uniformity and consistency, accounting operates within a framework of GAAP. www.cuidol.in Unit-3(BBA101/BCM-101) 7All right are reserved with CU-IDOL

GAAP 8 All right are reserved with CU-IDOL  Accounting being a man made system, must evolve and adjust itself to the changes in the needs of mankind.  As a result, accounting principles are not as exact and rigid as are the laws of natural sciences. Therefore, emphasis is on general, instead of universal, acceptability of accounting principles.  The GAAP are the building blocks of the accounting language. Rather, they are the pillars on which the structure of accounting is basically resting. www.cuidol.in Unit-3(BBA101/BCM-101)

Classification of Accounting 9 Principles Accounting Principles www.cuidol.in Concepts Conventions Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Concepts 10 Concepts include those basic assumptions or conditions upon which the science of accounting is based. Accounting concepts, conventions and principles have served as guidelines in the practice of accounting. Concept denotes logical consideration and notion which is generally and widely accepted. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Concepts 1. Business Entity Concept: 11 o Business considered to be distinct from its owners-proprietors, partners or members. o Considered as two distinct and separate entities. o Transaction has to be recorded from point of view of business and not owners. o Cash contributed by the proprietor, for example, adds to the cash resources of the business and hence, is debited to Cash account, though it reduces the cash resources of the proprietor. The businessman is just like a creditor of the business. 2. Money measurement concept: o Only monetary transactions come under accounting framework. o Money is a common denominator. o A stable monetary unit to be adopted. 3. Going concern concept: o Business has an indefinite life. o Not end or liquidate in the near future. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Concepts 12 4. Accounting period concept: o Divides entire indefinite life of business into smaller periods. o 12 months considered as one accounting period. Reports the results of the activity undertaken in ‘specific period’. 5. Cost concept: o Asset is ordinarily recorded in the books at the price at which it was acquired i.e. at its cost price. o Though recorded in the books at cost, in the course of time, they become reduced in value on account of depreciation charges. o Known as historical cost concept. o Assets do not reflect the real worth i.e. Price level changes 6. Dual aspect concept: o “For every debit, there is a credit”. o Two sided effect to the extent of same amount. o This concept has resulted in an accounting equation: Assets – Liabilities = Proprietor’s claim www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Concepts 13 7. Revenue Recognition Concept: o Profit should be considered only when realized. o No anticipated profit should be taken credit of. 8. Matching Concept: o Expenses should be matched to the revenue of the appropriate accounting period. o For Example- Salary paid in January 2011 relating to December 2010 should be treated as expenditure for the year 2010 and not 2011. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Concepts 14 9. Accrual Concept: o Accrual is concerned with expected future cash receipts and payments. o Make record of all expenses and incomes relating to accounting period whether actual cash has been disbursed or received or not. o For e.g. purchases and sales of goods on credit, rent (not yet paid), salaries outstanding etc. 10. Stable monetary unit concept: o Purchasing power of monetary unit remains same throughout. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Conventions 15 1. Convention of disclosure: o Financial statements should disclose all material information clearly to the reader. o State the fact of change in accounting policies and methods (if any) 2. Convention of consistency: o Same accounting principles for preparing financial statements for different periods. o Policy once adopted must not be changed. o Only be changed by showing the fact in the annual report. o For e.g. - Depreciation www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Conventions 16 3. Convention of conservatism:  Cautious approach or policy of ‘’Play safe’’.  Be pessimistic.  All losses must be provided but profits should not be anticipated.  Possibility of loss – taken into account at the earliest.  Prospect of profit – ignored until it does not materialise. 4. Convention of materiality:  Only significant transactions recorded.  Insignificant transactions should find no place in the books of accounts. www.cuidol.in Unit-3(BBA101/BCM-101) All right are reserved with CU-IDOL

Multiple Choice Questions 17 1. The accounting principle that states companies and owners should be account for separately. a)business entity concept b)going concern concept c) monetary unit assumption d)periodicity assumption 2. Assets are recorded at their original purchase price according to the: a)materiality principle b)historical cost principle c)cost benefit principle d)consistency principle 3. Management concealing important financial information violates the: a)materiality principle b)historical cost principle c)full disclosure principle d)consistency principle • Answers: 1. a) 2. b) 3. c) www.cuidol.in Unit-3(BBA101 BCM101) All right are reserved with CU-IDOL

Summary 18  Accounting principles: are uniform practices which entities follow to record, prepare and present financial statements. An entity must prepare its financial statements as per acceptable accounting principles in order to present true and fair view of state of affairs of entity. Accounting principles are the rules and guidelines that companies must follow when reporting financial data.  Generally accepted accounting principles or GAAP: are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices. www.cuidol.in Unit-3(BBA101 BCM101) All right are reserved with CU-IDOL

FAQ’S Q1.Define Generally Accepted Accounting Principles? 19 Ans:. Generally Accepted Accounting Principles are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices Q2. Explain International Financial Reporting Standards ? Ans: International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable around the world. ... They specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact. Q.3 Define Going Concern Concept of Accounting ? Ans:- The going concern concept of accounting implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason. ... Another example of the going concern assumption is the prepayment and accrual of expenses. www.cuidol.in Unit-3(BBA101 BCM101) All right are reserved with CU-IDOL

REFERENCES 20 1. Gupta, R.L., Radhaswamy,M.(2012). Advanced Accountancy. New Delhi: Sultan Chand&Sons. 2. Maheswari S.N.,(2018). Introduction to Accounting.New Delhi: Vikas Publishing House. 3. Shukla, M.C.,Grewal, T.S.,Gupta S.C.(2007). Advanced Accounts.New Delhi:S.Chandand Company Ltd. www.cuidol.in Unit-3(BBA101 BCM101) All right are reserved with CU-IDOL

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