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Accounting Principles
Accounting
Concepts
Accounting Conventions
ACCOUNTING CONCEPTS
In order to make the accounting language
convey the same meaning to all people & to
make it more meaningful, most of the
accountants have agreed on a number of
concepts which are usually followed for
preparing the financial statements. These
concepts provide a foundation for accounting
process. No enterprise can prepare its
financial statements without considering
these concepts.
2) MONEY MEASUREMENT
CONCEPT
Transactions
recorded.
Transactions of qualitative nature,
even though of great importance to
business are not considered.
3) GOING CONCERN
CONCEPT
Business
period.
As per this concept, fixed assets are
recorded at their original cost &
depreciation is charged on these
assets.
Because of this concept, outside
parties enter into long term contracts
with the enterprise.
4) ACCOUNTING PERIOD
CONCEPT
Entire
price.
This cost serves the basis for further
accounting treatment of the asset.
Acquisition cost relates to the past
i.e. it is known as historical cost.
8.REALISATON CONCEPT
According
ACCOUNTING CONVENTIONS
An accounting convention may be
defined as a custom or generally
accepted practice which is adopted
either by general agreement or
common consent among
accountants.
1) CONVENTION OF FULL
DICLOSURE
Information
2) CONVENTION OF
CONSISTENCY
Accounting
3) CONVENTION OF
CONSERVATISM
All
4) CONVENTION OF
MATERIALITY
Definition of Management
Accounting
According to the
Chartered Institute of Management Accountants(CIMA),
Management Accounting is"the process of identification,
measurement, accumulation, analysis, preparation,
interpretation and communication of information used by
management to plan, evaluate and control within an entity
and to assure appropriate use of and accountability for its
resources. Management accounting also comprises the
preparation of financial reports for non-management
groups such as shareholders, creditors, regulatory agencies
and tax authorities"
Management Accounting
Management
accounting uses cost
data for provision of
information for strategic
management decisions.
It is mainly concerned
with the provision of
help to the managers to
asses them in the
process
of
decision
making
and
design
business strategies.
Financial Accounting
Management Accounting
Managerial accounting is
not specific task of
particular department. coordination of all
department creates
management accounting.
Mandatory
Vs. optional:
Preparing financial
accounting reports are
mandatory especially for
limited companies.
Financial Accounting
Management Accounting
Financial accounting is
strictly required to follow
GAAP.
Time span:
Financial accounting
statements are required
to be produced for the
period of 12 months.
Monetary
Vs. nonMonetary:
Management accounting
information may be
monetary or alternatively
non monetary.
Relevance
Vs.
precision:
Financial accounting
emphasizes on precision.
Management Accounting
emphasizes on relevance.
Format:
GAAP:
Financial Accounting
Management Accounting
Planning and
control:
Financial accounting
helps in making
investment decision, in
credit rating.
Management Accounting
helps management to
record, plan and control
activities to aid decisionmaking process.
External Vs.
Internal:
A financial accounting
system produces
information that is used
by parties external to the
organization, such as
shareholders, bank and
creditors.
A management accounting
system produces
information that is used
within an organization, by
managers and employees.
Financial Accounting
Management Accounting
Users:
Management accounting
reports are exclusively
used by internal users
viz. managers and
employees.
Objectives
:
Accountin
g process: