Page 165 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes A principle was acceptable, if most professionals permitted it.
There are 12 general accounting principles.
Records should be made only of that information that can be expressed in monetary
terms.
Accounts can only be kept for entities, which are different from the persons who are
associated with these entities.

Accounting records, events and transactions on the assumption that the entity will continue
to operate for an indefinitely long period of time.

Assets are always shown at their cost and not at their current market value.
The value of the assets owned by the concern is equal to the claims on these assets.
Accounting measures activity for a specified interval of time, usually a year.
Anticipate no profits but provide for all possible losses.

The sale is considered to have taken place only when either the cash is received or some
third party becomes legally liable to pay the amount.
When an event affects the revenues and expenses, the affect on each should be recognised
in the same accounting period.
The consistency concept states that once an entity has decided on one method, it should use
the same method for all subsequent events of the same character unless it has a sound
reason to change the method.
Insignificant events would not be recorded if the benefit of recording them does not
justify the cost.
The objectivity principle means that financial information is supported by independent
and unbiased evidence.

13.4 Keywords

Accounting Conventions: Customs and traditions which guide the accountants to record the
financial transactions.
Accounting Process: It includes the recording of financial transactions, ledger posting, preparation
of financial statements and analyzing and interpretation of them.
Cost Accounting: Accounting relating to the ascertainment of cost of the product.
Management Accounting: Presenting of accounting information in such a way as to assist the
management in taking the important decisions and making the policies.

13.5 Review Questions

1. Why accounting principles are important for preparing the financial reports?
2. Identify the key accounting principles of financial reporting.

3. Records should be made only of that information that can be expressed in monetary
terms. Discuss.
4. The business entity principle states that business is accounted for separately from its
owner. Illustrate with a suitable example.

160 LOVELY PROFESSIONAL UNIVERSITY