Theory base of accounting class 11 notes

Theory base of accounting class 11 notes

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  Theory base ofaccounting class 11 notes Theoretical Base of Accounting Accounting is often called the language of business, because the main purpose of language is to act as a means of communication. Accounting also communicates the results of business activities to the managers, owners, investors, creditors, bankers, government, etc. Accounting as an information method is a process that identifies, measures, records, summarises, and transmits business information to the interested parties. In every business a number of parties are interested for different purposes. Accounting provides all these parties with the information required by them. In ancient times, accounting statements were required only by the owner of the business, but now various parties having interest in the business, such as business owners, investors, creditors, government and other parties, require these. Accounting statements reveal the profitability and efficiency of the business to various parties. Therefore, it is necessary to use accounting principles and standards in accounting. Accounting principles and accounting standards have been considered as the theoretical basis of accounting. Therefore, it is necessary that the accountants or accountants establish an interrelationship between the accounting principles, practices, concepts and accounting Principles Meaning of Accounting Principles Accounting principles refer to the rules used by an accountant or accountant while preparing financial statements and accounts. The accountant has to follow these rules while preparing proper accounts. Based on years of experience, experiment and need, the accounting profession has evolved certain guidelines or rules which can be used to record business transactions (or transactions) and prepare the income statement / profit and loss account and Their presentation in the form of sheets is done in the form of standards. These instructions and rules are called accounting principles. Accounting principles are known by many names, different names; Such as Concepts, Traditions, Axioms, Postulates, Assumptions, etc. Definitions of Accounting Principles
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  According to R.N.Anthony “The Rules and Conventions of accounting are Commonly referred to as (accounting) principles. “ According to AICPA “The word principle is used to mean a general law of Rule adopted or professed as a guide to action, a settled ground or basis of conduct or practice. “ In short, accounting principles mean all those rules and assumptions which explain the prevailing practices, help in the selection of conventions and methods and which are used in the preparation of financial statements. It is evident. that accounting principles govern the development of accounting techniques, practices and procedures Different Terms used for Accounting Principle Accounting principles are known by different names, such as Concept, Conventions, Postulates, Assumptions, Modifying Principles, Standards. ) And so on. The meanings of some of these words are as follows: Concepts – The term concept refers to the essential hypothesis or basic theoretical idea that is fundamental to accounting practice. Conventions – The term convention means the conventions guiding the presentation of accounting statements or from customs. Meaning of Accounting Postulates – Accounting axioms refer to such assumptions which are axioms, which are accepted by all. They do not require proof to be correct. The principles of accounting are based on these. All the principles of accounting, the originator of all of them is considered to be the axiomatic principles of accounting. Everyone accepts them automatically. No investigation is done to know their veracity. That’s why they are called self-evident. In practice, some authors interpret the same rules and guidelines in the form of concept, some in the form of concept and some in the form of convention. This is the reason why students sometimes get confused by it. Instead of going into the semantics of these technical terms, it is more important to focus on their practical usage. In practice it has been found that the words principle, concept, convention, modifier principle, concept, etc. are used interchangeably. Generally accepted accounting principles ( G.A.A.P ) Accounting principles have been considered guiding, as they provide standards or standards for sound accounting practices and procedures. On the basis of these standards, the accountants present the true and real status of the financial position and operating results of the business enterprise. The main feature of accounting principles is that they are not as firm and universal as the principles of natural sciences like chemistry or physics. There has been
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  a gradual developmentof accounting principles. They are the result of a long period of experience, usage and needs and problems. They are evaluated not on the basis of Universal Acceptability or Universal Acceptability but on the basis of ‘General Acceptability’. Therefore, the name Generally Accepted Accounting Principles (G.A.A.P.) is used for accounting principles. It is a technical concept that describes the basic rules, concepts, practices, conventions and procedures that apply at a particular point of time. Represents accepted accounting practices. These represent the views of professional accountants regarding good accounting practices and methods. The meaning of ‘generally’ is in the general sense, that is, related to many persons, situations and behaviours. Therefore, generally accepted accounting principles (G.A.A.P.) refers to all those rules and guidelines used for the purpose of bringing uniformity in the writing and preparation and presentation of financial statements, which are used for recording and presentation of business transactions. For example, an important rule is that all transactions in the accounts are recorded at historical cost, and these transactions must be verified by cash receipts from currency payments. Doing so makes the recording process more objective and accounting statements more acceptable to different users. Accounting Conventions The Oxford Advanced Learner’s Dictionary defines tradition as: ( Convention : Practice or Custom based on General constant ) Accounting convention/practice refers to the general practice that is followed universally in the recording and presentation of financial statements of a business entity. Accounting conventions are followed in the form of customs, rituals, conventions, etc. These make accounting information more useful. These have been developed through regular and consistent practice over the years. There are four types of accounting conventions: (1) Convention of full Disclosure
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  (2) Convention ofConsistency (3) Convention of Conservatism (4) Convention of Materiality Nature of Accounting Principles (1) Man Made — Accounting principles are man made. Their veracity cannot be tested in laboratories like the principles of other sciences. Accounting principles are not firm. These keep on changing from time to time, as they are based on logic, experience and experiment and evolve according to the changing needs. (2) Broad Guidelines — Not all businesses are the same, they have their own accounting method. Generally accepted accounting principles are not applicable to any particular entity or situation but are universally applicable because they are broad guidelines. In fact, the meaning of ‘generally’ is in a general sense, that is, it is related to many persons, situations and behaviours. Accountants use their discretion and judgement when applying these generally accepted accounting principles. (3) Not Universally Acceptable — Accounting is a social science. Accounting principles are not static in nature, as are the principles of other natural sciences. Accounting principles are constantly changing, influenced by the needs of users, legal, social and economic environments. (4) Ever – developing — Accounting principles are developing at a rapid pace. These are influenced by practices, customs, environmental factors, views of professional bodies, governance and other factors. (5) Lack of Verification — One of the nature of accounting principles is that their truth cannot be tested in the laboratory like the principles of other natural sciences. Need and Importance of Accounting Principles
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  Accounting has beencalled the language of business. Just as knowledge of grammar is necessary for understanding and interpreting language, in the same way accounting principles are required for proper understanding and presentation of accounting. The following facts are presented for the need of accounting principles (1) Essential for development — For the all-round development of accounting, it is necessary that it should have a strong foundation of universally accepted principles. (2) For accounting treatment — It is necessary to have concrete rules for accounting practice, so that the practice can be tested on the basis of those rules. (3) understanding of accounting information — Today, various people and organisations are interested in accounting information. Accounting information can be understood easily and credibility can be maintained in it, for this it is necessary that the recording of transactions, maintenance of accounts and preparation of financial statements are based on the prescribed rules-concepts and accepted practices. (4) According to the changes in the economic and social environment, there is a need for the development of accounting principles according to the circumstances in order to give a scientific basis to the changes taking place in the field of accounting. Essential Features of Accounting Principles Accounting principles have the following characteristics: (1) Accounting principles are Man – Mad — Accounting principles are man-made, not the result of laboratory tests. These principles are not firm and universal like physics, chemistry and other natural sciences. To make accounting data more useful, man has developed these principles in a changing society. These principles act as good guides for achieving the desired objectives, as they are based on logic, experience and experiment. (2) Satisfying three parameters — There are three criteria for universal acceptance of theories- (i) (Relevance), (ii) (Objectivity), and (iii) (Feasibility). (i) Relevance means that the information should be useful and serve the purposes of those who are engaged in a particular business. Would like to get information about. If this does not happen then there is no significance of the principle. Accounting fulfils this principle. Accounting information also proves useful in managerial work or decision making. (ii) Objectivity means that the accounting information should not be influenced by the personal views of the persons providing that information. Therefore, objectivity refers to reliability, veracity and facility of investigation so that the correctness of the information can be checked. (3) Accounting Principles are fast Developing — Accounting principles are influenced by business practice, practices, customs and the views and beliefs of those using the final accounts. Apart from this, the ideology of government representatives and business classes also has an impact on accounting principles.
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  (4) Difference inthe use of Principle — Different principles are used for the same work at different places (5) Lack of List of Accounting Principles — There is no such list of principles of accounting in which all the principles of accounting can be found at one place. ● Read more : Financial statements class 11 ● Read more : Triple / Three Column Cash Book ● Read more : Double Column Cash Book Class 11 ● Read more : Mixcelebrity.xyz