FINANCIAL AND MANAGEMENT ACCOUNTING FAQS UNIT 2 Accounting concept, Principles, Bases and Policies

1. What are the 5 accounting concepts? There are five basic concepts: Business entity concept (separate entity concept) Going concern concept Money measurement concept Periodicity concept Accrual concept 2. What is the separate entity concept? In separate entity concept, business is a separate entity and it is different from the owner and the proprietor. (Egif X starts is a business; he should not mix up his personal properties with of that of the business.) 3. What is the going concern concept? This concern concept says that the business entity will continue fairly for a long period of time. 4. What is the money market concept? It says that all transactions of a business are recorded in terms of money. An event or a transaction that cannot be expressed with the money terms cannot find place in the book of accounts. 5. What is the periodicity concept? It is the time interval for which accounts are prepared, even though we assume long life for a business. 6. What is accrual concept? Profit earned or loss suffered for an accounting period is the results of both cash credit transaction. It is possible that certain incomes are earned but not received and similarly expenses incurred but not yet paid during an accounting period. 7. What is dual aspect concept? It is recording of every transaction twice for verification purpose. Eg. If a proprietor invests Rs1,00,000 two accounts are affected, cash (asset) a/c and capital account. 8. What is accounting convention? Conventions are customs or traditions guiding the preparation of accounting statements. Convention of Disclosure, Convention of materiality, Convention of consistency and convention of Conservatism are the types of Convention. 9. What are the basic principles of accounting?

Principles of income recognition, principles of expense, principles of matching cost and revenue, historical cost principle, principle of full disclosure, double aspect principle, modifying principle, principle of materiality, principle of consistency and principle of conservatism. 10. What is accounting standards? It is a select set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. 11. What is IFRS? International Financial Reporting System is standards, interpretations and framework for the preparation and presentation of financial statements. It is framed by International Accounting Standards Board.