Page 10 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 1: Basic Accounting Review

3. Being business in the dynamic environment, it is required to face the ever changing Notes
environment. In order to meet the needs of the ever changing environment, the
policies are to be formulated for the smooth conduct of the business.
4. It equips the management to discharge the obligations at every moment.
5. Obligations to customers, investors, employees, to renovate/restructure and so on.

1.3 Accounting Principles

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.
Figure 1.3

Accounting Concepts Accounting Conventions

Accounting Principles

1.4 Accounting Concepts

The following are the most important concepts of accounting:
1. Money measurement concept
2. Business entity concept
3. Going concern concept
4. Matching concept
5. Accounting period concept
6. Duality or double entry concept
7. Cost concept
Let us understand each of them one by one.

1.4.1 Money Measurement Concept

This is the concept tunes the system of accounting as fruitful in recording the transactions and
events of the enterprise only in terms of money. The money is used as well as expressed as a
denominator of the business events and transactions. The transactions which are not in the
expression of monetary terms cannot be registered in the book of accounts as transactions.

Examples:

1. 5 machines, 1 ton of raw material, 6 fork-lift trucks, 10 lorries and so on. The early mentioned
items are not expressed in terms of money instead they are illustrated only in numbers.
The worth of the items is getting differed from one to the other. To record the above
enlisted items in the book of accounts, all the assets should be converted into money.

2. 5 lathe machines worth 1,00,000; 1 ton of raw materials worth amounted 15,00,000 and
so on.
The transactions which are not in financial in character cannot be entered in the book of accounts.
Recording of transactions are only in terms of money in the process of accounting

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