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Unit 3: Principles of Accounting

This concept facilitates to identify the worth of the transaction at every moment. Notes

Concept of fusion in between the expenses and revenues

Accounting Period Concept

The life period of the business is of a long span which is classified into the operating periods
which are smaller in duration. The accounting period may be either calendar year of Jan.-Dec.

or fiscal year of April-Mar. The operating periods are not equivalent among the trading fi rms.
This means that the operating period of one firm may be shorter than the other one. The ultimate

aim of the concept is to nullify the deviations of the operating periods of various traders in the
trading practice.
According to the Companies Act, 1956, the accounting period should not exceed more than
15 months.

Concept of uniform accounting horizon among the firms to evade deviations

Duality or Double Entry Accounting Concept

It is the only concept which portrays the two sides of a single transaction. The law of entire
business revolves around only on mutual agreement sharing policy among the players. How
mutual agreement is taking place?
The entire principle of business is mainly conducted on mutual agreement among the parties

from one occasion to another. The payment of wages is only made by the firm out of the services

of labourers. What kind of mutual agreement in sharing the benefits is taking place? The services

of the labourers are availed by the firm through the payment of wages. Likewise, the labourers
are regularly getting wages for their services in the fi rm.
Payment of Wages = Labourers’ service

In the angle of accounting aspects of a firm, the labourer services are availed through the payment

of wages nothing but the mutual sharing of benefits. This is denominated into two different
facets of accounting, viz. Debit and Credit. Every debit transaction is appropriately equated with
the transaction of credit.

All the above samples of transactions are being carried out by the firm through the raising of

financial resources. The resources raised are finally deployed in terms of assets. It means that the
total funds raised by the firm are equated to the total investments.

From the below Table 3.1, it is clearly evidenced that the entire raised financial resources are

applied in the form of asset applications. It means that the total liabilities are equivalent to the
total assets of the fi rm.
Total Financial Resources Total Assets

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