Commerce Pro Series - Day 9: Accounting Principles

Jul 22, 2024

Commerce Pro Series - Day 9: Accounting Principles

Introduction

  • Day 9 of Commerce Pro Series
  • 90 days to cover full syllabus of Accounts, Business Studies, Economics
  • Focus on Chapter 3: Accounting Principles
  • Two classes to complete this chapter
    • Today's class: basics and principles
    • Next class: complete the chapter
  • Importance of following the playlist and keeping up with chapters

What are Accounting Principles?

  • Principles: Rules or guidelines assisting in decision-making and performing tasks
  • Accounting Principles: Developed over time through study, observation, and analysis
    • Help in formulating rules and regulations for creating accounts
    • Base of all accounting concepts and chapters
  • General Acceptance: Globally accepted guidelines for preparing accounting statements
    • Developed through usage, reason, experience, statements by professionals, and government agencies
    • Known as Generally Accepted Accounting Principles (GAAP)

Features of Accounting Principles

  1. Uniform Set of Rules: Similar worldwide, applicable regardless of academic level
  2. Man-Made: Created through observation, practice, and experience
  3. Flexible: Can change with time and evolving business practices and technology
  4. Generally Accepted: Serve as solutions for many accounting problems globally

Purpose of Accounting Principles

  • Relevance: Useful and significant to users, free from irrelevant details
  • Objectivity: Free from personal bias or manipulation
  • Feasibility: Easy to apply without complications

Types of Accounting Principles

  • Accounting Concepts (Assumptions): Fundamental, developed through experience and usage
    • Legal acceptability and widely followed
  • Accounting Conventions: Based on customs and beliefs
    • Lesser legal acceptability, may vary among individuals
    • Examples: Full Disclosure vs Materiality

Basic Accounting Assumptions (Concepts)

  1. Going Concern
    • Business will continue indefinitely
    • Important for long-term financial decisions like loans and credit
    • Basis for recording fixed assets and depreciation
  2. Consistency
    • Use the same methods consistently across different periods
    • Important for accurate comparison of financial statements over years
    • Examples: Depreciation methods, stock valuation methods
  3. Accrual Concept
    • Transactions recorded when they occur, not when cash changes hands
    • Provides true financial position
    • Applies to both revenues and expenses

Recap and Preparation for Next Class

  • Review features and meanings of accounting principles
  • Understand the basic concepts: Going Concern, Consistency, Accrual
  • Next class will cover additional important concepts and complete the chapter