Page 156 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 13: Critical Evaluation of Principles and Practices

13.1 Meaning and Concept of Accounting Principles Notes

Accounting principles were historically developed through common acceptance and usage. A
principle was acceptable, if most professionals permitted it. These general principles became
the basic assumptions, concepts and guidelines for preparing financial statements. Specific
principles, based on these general principles, were then developed as detailed rules for reporting
business transactions and events. General principles, therefore, stem from long-used accounting
practices and specific principles arise more often from the ruling of authoritative groups.
Therefore, these specific rules differ may from country to country.
Significant differences in the specific rules create a lot of problems for multinational businesses
when they are trying to consolidate accounting information. Therefore, a need was felt to have
an international organisation that specifies the accounting standards that can be used throughout
the world. International Accounting Standards Committee (IASC) was born as a result of this
need. It issues International Accounting Standards (IAS) that identifies preferred accounting
practices worldwide and encourages their worldwide acceptance. More and more countries are
modifying their practices to confirm to these standards. As expected, India is far behind.

We need an understanding of both general and specific principles to effectively use accounting
information. Because general principles are especially crucial in using accounting information,
we will discuss them right now. Specific rules are described wherever required and connected
with the broad principles so as to help understand their applications in the practical situations.

Notes There are 12 general accounting principles that you should be aware of:
1. Money Measurement
2. Entity

3. Going Concern
4. Cost
5. Dual aspect

6. Accounting period
7. Conservatism
8. Realisation
9. Matching
10. Consistency

11. Materiality
12. Objectivity

Self Assessment

Fill in the blanks:
1. ……………were historically developed through common acceptance and usage.

2. Externally communicated accounting information must be prepared in accordance with
accounting ………….that are understood by both the senders and the users of that
information.

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