Theory Base of Accounting

Introduction

• Information about Accounting Principles, IndAS, and IFRS.
• The foundation of financial accounting generation, important from a future perspective.

Accounting Principles

Fundamental Assumptions

• Going Concern: The business will run long-term.
• Consistency: Continuously adopt accounting policies.
• Accrual: Record of transactions when they occur.

Accounting Principles

• Separate Entity Concept: Business and owner are separate.
• Money Measurement Concept: Record only events measurable in money.
• Accounting Period Concept: A fixed period for accounting.
• Full Disclosure Principle: Disclosure of all important information.
• Materiality Concept: Disclosure of significant information.
• Conservatism/Prudence Concept: Provision for potential losses.
• Cost Principle: Assets recorded at their acquiring price.
• Matching Principle: Match period revenues with period expenses.
• Dual Aspect Concept: Every debit has a credit.
• Revenue Recognition: Recognizing revenue when obligation is established.
• Verifiability Objectivity: Authentication of transactions.

Basis of Accounting

Cash Basis

• Records only cash transactions.

Accrual Basis

• Records transactions when they occur.

Accounting Standard

Meaning

• Uniform accounting rules and guidelines.

Nature and Objective

• Ensure uniformity, consistency, and comparability.

IndAS

Meaning

• Indian version of IFRS.

Features

• Transparency, uniformity, consistency.

IFRS

Meaning

• International Financial Reporting Standards.

Objective

• Development of global accounting standards.

Benefits

• Better decision-making ability for investors.

Difference Between IFRS and Indian Accounting Standards

• Principle-based vs rule-based.
• Fair value vs historical cost.

Note: The purpose of IndAS and IFRS is to enhance the global compatibility of accounting.