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Financial Accounting-I Sukhpreet Kaur, Lovely Professional University

Notes Unit 3: Principles of Accounting

CONTENTS

Objectives
Introduction
3.1 Generally Accepted Accounting Principles (GAAP)
3.2 Accounting Concepts and Conventions
3.2.1 Accounting Concepts

3.2.2 Accounting Conventions
3.3 Summary
3.4 Keywords
3.5 Self Assessment

3.6 Review Questions
3.7 Further Readings

Objectives

After studying this unit, you will be able to:
z Explain Generally Accepted Accounting Principles
z Illustrate Accounting concepts and conventions

Introduction

The transactions of the business enterprise are recorded in the business language, which routed
through accounting. The entire accounting system is governed by the practice of accountancy.
The accountancy is being practiced through the universal principles which are wholly led by the
concepts and conventions.

Accounting Concepts Accounting Conventions

Accounting Principles

3.1 Generally Accepted Accounting Principles (GAAP)

In course of time business enterprises would like to know how they are performing in comparison
to each other. Similarly there would be common owners of several enterprises.
Accounting principles are those rules of actions on the basis of which the transactions of the

business are recorded, classified and summarized. If the financial statements are not prepared on

the basis of these principles, there will be low acceptability and difficulty to understand them, and
the comparison will be impossible and unreliable. Therefore, the accountants recommend that
there should be common concepts and conventions of accounting so that the above diffi culties

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