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Revenue Recognition principle

Revenue is the gross inflow of cash, receivables or other considerations arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services and from the use by others of enterprise resources yielding interest, royalties and dividend.Sales Tax,Vat,etc.excluded (3rd Party.)

Cost Principle

An asset is ordinarily recorded at the price paid to acquire it at the time of its acquisition accordingly if nothing is paid to acquire an asset the same will not be usually recorded as an asset, e.g. a favourable location and increasing reputation of the concern will remain unrecorded though these are valuable assets.

Matching Principle

Expenses incurred in an accounting period should be matched with the revenues recognized in that period.


This concept is basically an accrual concept since it disregards the timing and the amount of actual cash inflow or cash outflow and concentrates on the occurrence (i.e. accrual).

Matching does not mean that expenses must be identifiable with the revenue. Expenses charged to a period may or may not be related to revenue recognized in that period e.g. cost of goods sold, commission to salesmen are directly related to sale, whereas, rent, interest, depreciation, accruing with the passage of time and stock lost by fire are not directly related to sales revenue yet they are charged to the accounting period to which they relate.

Objectivity Principle

Accounting data should be definite, variable and free from the personal bias Each recorded transaction/event in the books of accounts should have adequate evidence to support it.Examp.voucher receipts, cash memos, invoices, etc.

Accrual Concept

Revenues and costs are accrued i.e. recognized as they are earned or incurred This assumption is the core of accrual accounting system.


Anticipate no profit but provide for all possible losses’ while In other words, the accountant follows the policy of playing safe”. On account of this convention, the inventory is valued ‘at Cost or Market price which ever is less’. Similarly a provision is made for possible bad and doubtful debts

Full Disclosure

ccounting reports should disclose fully and fairly the information they purport to represent. They should be honestly prepared, and sufficiently disclose information which is of material interest to proprietors, present’ and potential creditors and investors. The practice of appending notes to the accounting statements (such as about contingent liabilities or market value of investments is in pursuant to the convention of full disclosure.


According to this convention the accounting practices should remain unchanged from one period to another. Necessary for the purpose of comparison. However, consistency does not mean inflexibility. It does not forbid introduction of improved accounting techniques


Attach importance to material details and ignore insignificant details An item may be material for one purpose while immaterial for another The Companies Act also permits ignoring of ‘paise’ while preparing financial statements. Similarly for tax purposes, the income has to be rounded to nearest ten.Regard an item as material if there is reason to believe that knowledge of it would influence the decision of the informed investor.


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