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Explain the need for theory base of accounting?

The accounting information must be reliable, relevant and comparable for the effective functioning of business. This is possible only when the information in the financial statement provides uniformity accounting policies, principles and practices.


This calls for theory bases of accounting. It consists of accounting concepts, convention, assumption, principle etc. for the purpose of uniformity approach in the accounting process.


List out the Accounting concept?


Business Entity

Money Measurement

Going concern

Accounting Period

Dual Aspect

Revenue Recognition










Write a short note on “GAAP”?

The set of principles, assumption and practices following in recording accounting transaction and in preparation of financial statement referred as “Generally Accepted Accounting Principles. “ (GAPP)"


Write a short note on Business Entity Concept?

This entity states that business is separate from its owners. The owners are treated as Financier eligible for profit or loss in the business. This enables the accountant to differentiate the transaction of the business and those of owners.


Explain the Purpose of Money Measure Concept?

A facts or transactions which can be expressed only in terms of money are recorded in Money Measurement concepts. In other words, it excludes Qualitative transaction such as working condition, skilled labour, Health of the manager etc., which is essential for smooth running of business operations.


It requires use of monetary unit as basis for measurement.

Different items are expressed in varied basis of Measurement.



Define Going-concern concept?

According to Kohler’s dictionary for Accountants, a going concern is defined as “Any enterprise which is expected to continue operation indefinitely in the future”


Explain the importance of consistency in Accounting Concepts?

According to this principle, the accounting policies, assumption, concepts used in accounting should not change form period to period.

This enables the accountant to compare the results among different accounting period.

This principle does not prohibits the change in accounting policy/method .In case of changes in any accounting policy /methods it should be clearly disclosed in the financial statement in the form of foot notes.


What do you understand by Convention of Materiality?

It refers to “relative important”. All important and relevant facts should be recorded in the financial statement.

Unimportant items are either left out or merged with other items.


Explain the system of Accounting?

Single Entry System

It is an incomplete record of book-keeping. It is not restricted with accounting principles and policies. Under this system, only personal account and cash account are recorded. Single-entry does not mean recorded of only one aspects of entry for each transaction.

It includes

Single entry - for transactions like cash purchases

Double entry - for transactions like Cash paid to creditors

No entry - for transactions like depreciation.


If nominal and real accounts are missed, it does not show the True and fair view of financial statement.

Business people like Small traders, professionals follow this method.


Double entry sytem:

For every Transaction it includes two aspects. One is receiving aspects and another is giving aspects. Both these aspects are recorded in a double –entry system of book-keeping. As it is restricted with accounting concepts and conventions it can view Reliable financial position. The basic principle under this system is for every debit there must be a corresponding credit.


Difference between cash basis and accrual basis of accounting?

Cash Basis

Revenue is recognised only when cash is received and expenditure incurred is recorded.

E.g. Salary Rs.1000 P.M. Paid 6 month of salary.Therefore, Salary includes Rs.6000 in the profit and loss account.No outstanding or prepaid expenses to be adjusted.


Accrual Basis

Revenue and expenditure is recognized during the period in which they occur rather than when they paid.


E.g. Salary Rs. 1000 p.m. Paid 6 months of salary.Therefore, Salary Paid – 6,000 + O/S salary –6,000 = 12,000


Write a short note on Accounting Standard?

In 1977, the Institute of Chartered Accounts of Index “set up the ‘Accounting Standard Board ‘. The main function is identifying the developing accounting standard and issuing guidelines for implementation thereof.


As India is a member of International Accounting Standards, ASB give due consideration while formulating the standards. ASB has issued twenty-seven accounting Standards as on 8th February 2002.


List out the Accounting Standard?



No. of AS

Title of the Accounting Standard


Disclosure of Accounting Polices ( 1991)

AS 2

Valuation of Inventories ( 1999)

AS 3

Cash flow statement (1997)

AS 4

Contingencies and Events occurring after the Balance sheet(1995)

AS 5

Net profit /loss for the period, Changes in Accounting policies(1996)

AS 6

Depreciation Accounting (1995)

AS 7

Accounting for Construction contracts ( 1991)

AS 8

Accounting for Research and Development (1991)

AS 9

Revenue Recognition(1991)

AS 10

Accounting for Fixed Assets (1991)

AS 11

Accounting for the effects of changes in foreign Exchange rates

AS 12

Accounting for Government Grants

AS 13

Accounting for Investments (1995)

AS 14

Accounting for Amalgamations (1995)

AS 15

Accounting for Retirement Benefits in the Financial Statements of Employers

AS 16

Borrowing Costs(2000)

AS 17

Segment Reporting (2001)

AS 18

Related party Disclosure (2001)

AS 19

Leases (2001)

AS 20

Earnings per share (2001)

AS 21

Consolidated Financial Statement(2001)

AS 22

Accounting for Taxes on income(2001)

AS 23

Accounting for investments in associates in consolidated Financial Statement (2002)

AS 24

Discontinued Operations(2002)

AS 25

Interim financial Reporting(2002)

AS 26

Intangible Assets(2004)

As 27

Financial Reporting of Interests in joint ventures (2002)


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