(1) Relevance

agreement case focuses on the fact that only this information should be made available accounting is appropriate and beneficial to achieve their goals. For example, companies like to know what has been the total wage? It is not interested in knowing how much employees spend and what they save.

(2) Objectivity

Convention of objectivity emphasizes that accounting information should be measured and expressed by the standards that are widely accepted. For example, a stock of goods lying unsold at the end of the year should be considered as cost her not at a higher price, even if it is likely to sell at a higher price in the future. The reason is that no one can be sure about the price that will prevail in the future.

(3) Efficiency

Convention on the feasibility emphasizes that the time, effort and cost to analyze accounting information should be compared vis-à-vis comes from. For example, the cost of “oiling and lubricating ‘machinery is so small that its break-up per unit produced will be meaningless and will amount to a waste of labor and time accounting staff.

Accounting Concepts

(1) Importance

It refers to the relative importance of an object or event. Those who make accounting decisions continually face the need to make decisions about the importance. This is part of large enough user data to be applied? The essence of the importance of the concept is an omission or misstatement of an item is material if in the light of the surrounding circumstances, the scale of things is such that it is likely that the judgment of a reasonable person relying on the report would have been changed or influenced by inclusion or correction of the transaction.

(2) Accounting Period

Though accounting practice believes in continuing entity concept ie life business is perpetual but still it has to report ‘results of operations undertaken in a given period (preferably one year). So try to present the accounting profit or loss earned or suffered by the company during the period under review. Usually, it is the calendar year (January 1 to December 31), but in other cases may be financial year (April 1 to March 31) or any other period by the comfort of the business or as the practices in the country.

Because of this idea, it is necessary to take account of the reporting period, all items of income and expenses accruing on the date of the financial year. The problem facing this concept is that proper allocation should be made between capital and revenue expenditure. Otherwise, the results published financial statements will be affected.

(3) implementation

This concept emphasizes that profit should be considered only when realized. The question is at what stage profit should be deemed to have collected? Whether at the time of receiving the order or at the time of execution of the order or at the time of receiving the cash. To answer this question the accounting is in accordance with the law (sales of goods Act) and recognizes the principle of law ie income earned only when the goods are imported. It means that profit is deemed to have accrued when ‘property in the goods passes to the buyer, “viz., When sales are at stake.

(4) Closed

Although the company is continuous issues remain its continuity artificially split into several accounting years to determine the regular outcome. This profit is a measure of the performance of concern and as such it increases capital owner. The profit is in excess of income over expenditure it will be necessary to bring together all revenues and costs associated with the period under review. Implementation and fall terms are actually derived from the need to match expenses with revenue earned during the accounting period. Earnings and expenses shown in the income statement must both refer to the same goods transferred or services rendered during the accounting period. The corresponding concept requires that charges should match the income of the relevant accounting period. So we have to determine the income earned in a particular reporting period and the expenses to earn this income.

(5) Total

According to this concept, a project measuring income and wealth in the hands of accounting for identifiable Unit or party: The unit or entity that is treated different and distinct from its owners or contribution. The law distinction between owners and the company is only drawn in the case of public limited companies but in accounting this distinction is made in the case of sole proprietor and partnership firm as well. For example, the products are used by stock company commercial purposes treated as a business expenditure but similar products used in the owner ie owner for personal use are treated as his drawings. Such distinction between the owner and the business unit has helped accounting in reporting profitability more objectively and fairly. It has also led to the development of ‘responsibility accounting’ which enables us to find out the profitability of even the different sub-units of major companies.

(6) Stable Monetary Unit

Accounting expected that real monetary unit, say Rupee, remains the same throughout. For example, the internal value of one Rupee is same and equal in 1800 and 2000, thus ignoring the effect of rising or falling purchasing power of the monetary unit due to deflation or inflation. Despite the fact that the assumption is unreal and implementation ignore changes in the value of money, is much in doubt, yet the alternatives suggested to incorporate the changing value of money in accounting statements viz., Current purchasing power method (CPP) and current cost accounting method (CCA ) are in the development stage. Therefore, for the time we have to be content with a “stable monetary unit ‘concept.

(7) cost

This concept is closely related to the going concern concept. According to this property is usually recorded in the books at the price it was purchased ie of its cost. This ‘cost’ serves the basis for the accounting of this asset at a later time. This ‘cost’ should not be confused with “value”.

It must be borne in mind that the real worth of the assets changes from time to time, it does not mean that the value of such assets is wrongly recorded in the books. The book value of assets listed do not reflect their real value. They do not signify that values ​​noted therein are the values ​​that they can sell. While the assets are recorded in the books at cost, in course of time, they become less effective due to depreciation. In certain cases, only assets such as “goodwill” already paid for will appear in the books at cost and when nothing is paid for, it will not appear if this property is available on name and fame created by a concern.

The value to the assets in the balance sheet and net income as shown in the income statement can not be said to reflect the correct measurement of the financial position of the company, as they have no connection with the market value of assets or exchange values. This idea that the transaction should be recorded at cost rather than subjective or arbitrary value is known as Cost Concept. Over time, the market value of fixed assets like land and buildings vary greatly from their cost.

These changes or changes in value are generally ignored by the accountants and they continue to value them in the balance sheet at historical cost. The principle of assessing fixed assets at their cost and not at market value is the underlying principle in cost concept. According to them, the current values ​​alone will fairly represent the cost to the entity.

Cost rule based on the principle of objectivity. Supporters of this approach argue that as long as the users of the financial statements have confidence in the statements, there is no need to change this approach.

(8) restraint

This concept emphasizes that profit should never be overstated or anticipated. Traditionally, accounting follows the rule “expected no profit and provide all losses. For example, the final stocks are valued at cost or market value, whichever is lower. The effect of the above is that if the market has come down then provide” expected loss, but if the market has increased overrides’ reward.

Critics point out that conservation to an excess degree will result in the creation of secret reserve. This will be quite contrary to the teachings of the publication. However, conservatism to a reasonable degree may not come in for criticism.

Accounting Equation

Dual concept may come as “for every debit, there is a credit.” Every transaction should have two sided effect to the extent that the same amount . This concept has led Accounting equation which states that at any point of time assets of entities must be equal (in monetary terms) to total equity owner and debt is called. May be expressed in the form of equation:

AL = P

where

A stands for the entity’s assets

L stands for liabilities (Requirements outsider’s) unit; and

P stands for the creditor’s (Capital) of the party.

(The form presentation of equation AL = P in accordance with the legal interpretation of the financial situation. Thus, it emphasizes that properly speaking the requirement is the situation by providing for requirements outside of the undertaking of the company’s total).