ch-3 Flashcards
What is GAAP (Generally Accepted Accounting Principles)
GAAP are basic/fundamental propositions accepted by the accountants based on which transactions are recorded in the books of account and financial statements are prepared
What are the fundamental accounting assumptions?
- Going concern assumption- it is assumed that business shall continue for a foreseeable period and there is no intention to close the business or scale down its operations significantly
- Accrual assumption-A transaction is recorded in the books of account at the time when it is entered and not when the settlement takes place
- Consistency assumption-Accounting practices once selected and adopted should be applied consistently year after year.
What are accounting standards?
They are the written policy documents covering the aspects of recognition, measurement ,treatment, presentation and disclosure of accounting transactions in the financial statements
What is IFRS?
International Financial Reconstruction Statements (IFRS) are a set of accounting standards issued by IASB based on sound and clear principles
What is the difference between accounting concepts and accounting assumptions.
Accounting concepts are the basic assumptions within which accounting operates
Accounting conventions are the outcome of accounting practices
What are the features of accounting?
- Accounting principles are man-made
- Accounting principles are flexible
- Accounting principles are generally accepted
Name the accounting principles?
8.Matching concept/ Matching principle-It is necessary to match revenues of the period with the expenses of that period to determine correct profit (or loss) for the accounting period
9.Dual aspect/Duality principle-Every transaction entered into by an enterprise has 2 aspects, a debit and a credit of equal amount
CAPITAL+CLAIMS OF OUTSIDERS=ASSETS
10.Revenue recognition concept-Revenue is considered to have been realised when a transaction has been entered into and the obligation to receive the amount has been established
11.Verifiable objective concept-This objective holds that accounting should be free from personal bias.
1.Accounting entity or Business entity principle-Business is considered to be separate and distinct from its owners
2.Money measurement principle-Transactions and events that can be measured in money terms are recorded in the books of accounts of the enterprise
3.Accounting period principle-The life of an enterprise is broken into small periods so that its performance is measured at regular intervals.
4.Full disclosure principle-There should be complete
and understandable reporting on th financial statements of all significant information relating to the economic affairs of the entity
5.Materiality principle-An item should be regarded as material if there is a reason to believe that knowledge of it would influence the decision of an informed investor
6.Prudence or conservatism principle-Do not anticipate a profit, but provide for all possible losses
7.Cost concept or historical cost principle-An asset is recorded in the books of accounts at the price paid to acquire it and the cost the basis for all subsequent accounting of the asset
Highlight the accounting standards?
- Guidelines providing the framework so that creditable financial statements can be produced
- Uniformity in accounting
- Guidelines change with change in business environment
- Mandatory
- Flexible
What are the objectives of accounting standards?
- Minimise the diverse accounting policies
- Better understanding of financial statements
- Understanding significant accounting policies adopted and applied
- Facilitating meaningful comparison of financial statements of 2 or more entities
- Enhancing reliability of financial statements
What are the purposes of accounting standards?
- Provide the norms
- Ensure uniformity
- Create a sense of confidence
- Help auditors
What are the limitations of accounting standards?
- Man-Made
2. They change often to meet standards
What is the full form of IASB
International Accounting Standards Board
What are the objectives of IASB?
- Develop in the public interest
- Promote Use and rigorous application of those standards
- Fulfilling the objectives associated with public interest and standards
- Convergence of national accounting standards and IFRS to high quality solutions
What are the assumptions of IFRS
- Accrual Assumption
- Going concern assumption
- Measuring unit assumption- Measuring unit for valuation of capital is the current purchasing power
- Constant purchasing power assumption-It means value of capital be adjusted to inflation in the economy at the end of the financial year
