Theowt ical Framework [20 masks] | Airaheutiens SS | ¢ How lite stavts in Acconts 2f Transaction] 1 Tt stats with what fs called atyansactions TransactiO9 te an ! exchanges Exarmple~sYou go to.ashep and buy pens The moey ! is exchanged for a porsas Sou ge to a dectov to get vid of your | disease - The money is exchanged fos sesvice > Aecoonting aan be done on cash basic. oF aces val (ered? }D basis.» Cash Basis- Where goods and sesufees. axe exchanged with cashs In simple terms, We Pay money and_bey goods ox seevices eee Accrual Basio- Tt meons credit transaction: Cvadtit transactions ase voheve we buy goods but pay the amount in-futuzes Roles for Tsansactions : have | ce 4: Transactfon must Ga @ & This fs called doal aspect: That 15 uhy we called accounts as _dovhle entry book-keeping: It was Povented by Lucto Pa ciolio. Though the ales ave of Btypes- personalyreal or Nominal every transaction ef each ef these types of ales most have t 3. aspects: Assets = Capi also xeguises two aspects + tal + abilities is accor oting egoation: Tt ar Secondsule fox atsansaction fs, it has to be intesyms of moneys LE shovldxecosd only the ety transactions: Money /monatexy does not only mean cash basis. butalso actwal bast: ThS ts the framovs Money Measesement Concepts The flip side Csecondfother] is that 3f any R ansact?on cannot be measured th terms. cf money, Tt cannet be gecorded 0 “the. beoks of accounts.Opening Stock= Stock at beginning of eeccount ing Yeor« Closing Steck-Stock at the end of accounting UEA¥” What ts event 2 Explate vith OE sefaranepiond ~ A Transaction ts ene-off+ Example- Rent patd fox the mcoth , Purchase | OF Greods. An event ts a sesult of numba of transactions and it haste Appeax In Balance Sheet Tn sieple tenes, * we do a lot oF drancact tens, the ©vtcome cf those transactions is known as anevent* Exar ple- Stock puted, Stock sold, Stock sald on constgoment and aftes pesforming: all the transact | On Stock, the voscld Iclosing stock 7s_an euteomer Closing stock 15 the sto leftover at the end of the accounting yeaxs Thus, closing stock is an eventas TE 5 the ovteeme after alletransactions axe performed relatiingto Stocks hy, Cxample of an ovent is profit fos the yeas. After subtyacting expenecs,, from the incomes, we get profit: Thus, profit # also an event = What Ys Accounting Cycle? Explain with b suftable Aiagrams THE ACCOUNTING CYCLE [Transcuctfe Final — ~ MS ( ‘ Een ( Journal { f © --Tadtieg fe Ledges Balonce 2 frofttd Loss \ 7 | Sheet Ale yy - dias | Tifal “YN Balance exe, Firal Recounts yefers to tish- Flow Statements oy Ratlo Anatysis whet ss. anatyse to finput the whole data and we communicate wth the users of e 3 ackeeunting infos mation i 3 ll BA RARUSure Ledger Folfo~ Used fr fournal as ft fs to be transferred toledgey d+ Journal + outnal Folto - Used tn ledgex a5 ledger is crested From Journal ~ Tsansactfons aye xecorded in Journal Joutnal fs a book of original entryy Tk fe known as secondary book, Tt consists of Five columS~ The format ef Tovsnal ts as follows + Date | | =e 2d Ledges in the books of Journal Entries Particulars LF Debit Amt: ~ From Iournal, the transactfons ave posted fn Ledgers All entiles in focura) ? are posted fn ledger + Ledgex fs Known as principal books Tt consists ef Scolumns- The fosmat cf Ledger Alets as follows :- On, Pate \ Paxtieulars ———+ > Types ef Accounts There ave li ty pesy namely - [TF | Amount Date ) Cee} Raatfculars TF Amant | a+ Rest Ale - Related to Assets - land 4 Butlding, Fouvture, Tradernank, ete: b+ Nominal Ale Related te Expenses - Credit all ¥ Pebit oll sovenve expensesd losses nuatres.? gatns - cs Perstral Ale - Related with name of oxganfsationoy pexson d- Representative Feasonal Ale- Outstanding & Prepaid Transactfons 65e must Follow modern approach, also known as acceunting egvatton __ approach and rot the teaditional appioach » 2 — rtee. okth example plain £ Ea Teadftfond Apprcach? £ thy we should not follow Sath &s-d9000 Example Tf we puschased a mac nney y. 6 9 and fn chaxges patd Rs. Jooce, the entry %S Machinesy Ale ~ Dee Qooood To Cash Ale Reaoce : Bot according to traditional appreach, entsy ghocld be Machinesy Ale - Dy. 190000 Tostaltation Chas ges Ale~ Dr. locoe To. Cash Alle Reoocd which is incoxvects Thus, we should not follow Ayad fefonal apprsch. The axpenses ef capital nature [tke nstallation charges Most bbe debited: be included fn assets and sevenve expenses mes In accounting cycle, firstly a transaction takes place he tween twee persons {in monetary teens, Then, the transaction fs yecoxded to a joovnal Fist, From-a jousnal, tis posted to ledges * Pftex posting of transaction ty Ledges, a tyfal balance is created » After Creating trial balance y we Terre ox caltvlate gxoss profit! loss fom Tsading Mle and niet Profit! Loss Fsor Profit 4 Loss Ale: Then, we wih show the profits wlth assetsd [abilities fain the balonce sheet: Froally, we will prepase Final Retounts fren Cash Flow Statements fxonm where we can show Inflow 4 outflow of eashlach Flow Statements have 3 activi ties- Operating , Tvesting , Financing « throgh these activities taking place £2 a Cosh Flow Statement Yofosmation to the vsexs whieh they seguire + yWE CAN Communicate w Define accounting according +0. committee of Teamtralogy of NI” ~ Accounting ts the art of Recosding, Classttytng & Y Sommanizing fo a. significant manney fn terms of Money y Transaction § Event whfch ore fn past at least of a financial character and, f inter pre ting the results Ahexe Oe R monetary value.* Also classified ‘to pexsonal, veal canom?nal nature Procedural Aspects of Accounting. Explatn with adiagram : ae Psoceduse of Accounting ; 4 Generating. Financial Usfog the Ffnancial + “Infouwation Tofomatton wy 1 Rewsd tng CR) i Analyse Ca) Classifying CC) fA Inter pret. Cr) f Summarizing CS) - Conmunfeate fc) ¢ Proceduxe of Accounting consists of + : ; L Grenexating Financfal Pnfcrmation by xecording, classtfying € surmmarisy a Using the Financial information by aoalyzing , intexpreting S communicate To use the financial fnfosmation, first ue need to genexarte ft In sinpe! texins, trancachion te fest recosded,,then classified Tnto aGikib on crette’ transactfon then summarized in the books of accountss Then, the financfa)._/ foformatton ts used by Ratio Analysts {hoalyse] and Snterpreted fo Cash Flow Statement fs communicated tothe user ‘ What aze the objectives of accovating? Explain. i the objectives of acounting axe a5 follows 4s Book- Keeping = Systematic Recosdof Tyansactions: a Teading$ PEL ALE = Ascestatment of Results [orsoss Paoftt, Net Artie] , ‘ = Ascestatoment of financfal post tfon {Resit is Event]. ) a+ Balance Sheet aie [Stettholder- roti of rr} U* Financial Repovts = Paoviding Tefosmatfon to Usexs | How enveh OFsidend dedve 2 5+ Liguidtty = To know the solvency posttten eave the objectives of accountings Tcl5° ‘hat axe the functions of accounting? State ® Ex plator 4 The Followkng are the functtons of accounting + Measurement 5 To Check that the data uahich we axe secoeding &% xclevantow frrelevant OH TSRE suttable fox actounting puwpsse ox not* Pscasting The data which we are setording and the outcome which comes out oF ‘it LEvent] helps in futore foxecasting of ova busines * In siraple tems, the datarecordadé the ovtcome will help us to decide chat will happen to ove business puoduct, profittabiitty, sustainability , competitoas,ete. Dectsfon= making The wecosded data andevent wil help the businessman totake decfstong Tegasding his business andits futures Com parison # Evaluation we ghovld [Businessman should cornpare & evaluate its previous year's - profit] loss with corvent years poftt loss -Tt will help the businessman to do better futvse foxecastings Control A Businessroan Shovld havelshould contscl his business and the tromattins ~ of his bustess+ He should have complete right to stop extra transactions OF 1055 -causing ore Groveanrment Regulations & Toxation p Businessman must follow Rimplement govesnment yegslatSons in his business He must also pay tox on time and also-ch ow the yetiag of Tea tien Yn hYs accounts and present ther to govt.wheneves ve quiredWhat ove the sub-ffelds of accounting P State © Gepbaley The sub-Fields of accounting ave ag follows = A> Foancal Recoyoting - Deals with Fenance Coney 8 Management Accounting ~ Deals with manage ment > Cost Accounting - Deals with costing [¢n tntex] We Social Responsibility Necounting - Deals with goctal vesponsib’ lity Ss Homan Resource Accounting Deals with Horan Resource [He] Ra tonee a Stn — State the vsexs of Accounting Infosmatfon- i The users of Recovnting Infosmatfon are as follows i- A> Investors - So that he can invest 6+ Govern ment ~ Financial sitPento levy tox, 7 Rs Employers- So thattheycan cork T+ Public- Trust on ous goo auill% buy 4 Test Facto: , 3+ Lenders ~ So that theyiend meney 00% products } x 13 0 that they can also us Suppliers - Sens gods cn ceed’ 2° Competitors - To provide cred? td en) S- Costomes& - $0 that they keep reliability. buying ovr products: ! = What #s th fundamental accounting equation Phere fs Tt shovon es The fundamental accounting equation % Capital Liabilitves = Assets | ov Capital = Assets - Liabilities: Tt fs shown fn the balance sheet as they axe the pasts of Bolance Sheet» = What fs the velatfenship of accounting f book-keeping ? Bookkeeping must end befese accounting stasts- Book-keeping Isa | Shostex team whereas accountng is a bYoades team: Accountancy ts a | very bread term which contains both Book- keepteg &rcountaney thin fe | i =mca'scon? 4 Which of the following ts the Sub-Field of acceontieg T a Management Accovnting bs a Financial Recount ing Cost Recounting ds All of these” fos ; “OS AlN OF these d) axvethe fields oF accounting: & On Bist Mavehyrcde, Visho after Sale of goods wosth Rs.A5oe09 ' : s, is left with closing stock of Rs. Sooowhich Ts a transaction fn the hooks of accounting. State True oy False Lins The statement %s False» The closing stock fan ovtcome of all the transactions velating to stock& the result ox outcome after ail the transactions fs mown as an event- Thus, here closing Ste ckmust be vecowded as an event on the credit side of Taading Ale 4.on the assets side of balance Sheet and not as a transactto 0+ 5+ Double Entyy System owes Eo origin to Lucio faciel’o_to the year 1ugts 4> On 34st December, ILO, ABE Limited purchased a machine from XIZ Limtte ds This fs ddboth of these __ Cyeax ends en 34st Dec Yodel a) a transaction ban event AY both of these fans Tis both a transactfon$ an events Tk és a tuanswetion astt i$ 70 ¢) none ef these monebary terms and tt ¥Sa puschases Tt #s anevent as %t fs peatormel at the end of the years Fox being an event, %t must hean ov teame or sesut and also must occur at the end of the year. 5 péter secording a transaction fn Journal, Tt % pocted toe) Ledger eaytesding Ale b) Balance sheet Friedges AY Cash Row Statement: oe— Bhat axe accounting princtples ? Explain with exarorle Pecounting principles axe a body of doctrines commonly associates, With the therry® proceduses of accounting Tt siroply means we, have to follow the thecsy ? procedures given fo accounting prfnciptc. They axe nat to be Fqnoseds Forex~ Tt the accounting principle say. that ovr closing year is 34ct parch and opening st April, then + we have ta follow thes Accounting year only: Tf the accounting Principle says that Cvexy transaction has dual aspect CIF there fy a debit, there 75 a cred?t] then wehave to follous dual aspects If accounting principle Says that the tvansactions which %xe corded Tn ferms of money tevaloated %n texms money stou'd only he recorded: tn Journat,then we have to xecurd those transactions onty + Tf ovr i Accounting principle says that secoxd future losses, then we have to 1 record the futoyelossess i = On whomlushat should the accoviting principles be bated en? Explain Accounting principles should be 2 : 4+ Based on seal assumptions i ~ The accounting ave should be based en veal 035 umptfons only: ¥e, ; should net Jock create them: We most alsocheck and conftem-that Hey | axe based on seal assynptfons. 2+ Followed consistently ‘ ~ Recounting peinciples most be followed consistently Cregulasty, ‘Teshoold! not happen that ene day lone year we followed them and other day! year we don't follow thom: Te will-xesvlt tm lack of comect & complete acca : 3 Reflect future predictions : ~ TF coe propealy follow 4 Fmplerent the accounting principles then we will & able to seflect the Fotuse predietfons forouy business! compan 4°Ws ty, formatvonal ta uperd Qo KeOMAL NG prinetpes dual he Vader lundable Cinta ag, \ “ OTN ysens of AOU ALN TE a he Ly ta qeical bE compat hat axe Necoonting Conventioos { Eaplate tit ex areple 8 “ovating Conventions Heer bo [he Geqeaat aqwement fn HH Hage An a ° . o e 4 Od pact lees ie rodat oe cconmte HO TL rneans ceply thal the “Counting conventions must be paactfealky oned Aa ppltcabte a the Seetal Leconomie Mito of the hooks Heonypenyys They te ali BDO a Gun p Meaning Generally Accoptal Necoontirey Prinriplese foe Coomple ty ‘eee ae lakh bos tiesses dn the world and fthoveand af Hern ade, Product manofacturing busines 5 then The accounting of there Uhancant: %£f poodved won vfactoying hustnosses must be done 1 Che Sanne martes The Same. accovating principles muck be Cotaued by Uheme They cantot design thety on accoonting patneiploss TC the Nrcoan ting princple of Product roanvfoctusers states thal Reducing Aalanes MeOhod of Repsol toost be followed ythen all the thoosands ull have fo follow TU « ~ Discuss the Accounting Concopliste detail: ds Money Measurement Concept ~ AN transactions must be Luestatalte taxms of more ye tf fang tutenlion cannot be bvanslated fh tears of monty, then it cin not come in ales pocantng TH cannot be servaded ty books OF ales: Ce foyatty of workers t ghete SKI OF tanagement cannot be measored 1 teyne, of money, thes tht at cannot be secosded whereas, roeconnmrat ton fe loa} lo wreak Oas can Le men’ in berm Sc rmney and thus they will he Xecorded fo the books of accowntss Teer of money means cash cade bath, traneac tions»® Deal Aspect Concept ~ Wis concept says thet every transaction has tuoaspects+Ifone § aspect fs debit ,then the other aspect will always be cxed?t. Every debit has a cred * every credtt has o debit: Devble- Entry systenof ° Book keeping ts Followed: The fundamental arcanting equation, fe, Capitals Assets- Léa Eas 5 based an this concept: 3: Nesfodictty Concept ~ This concept says that the by: which starts on Ast Apsil § Ends on 34st March «AN the matersal things: which happened estthin these ARmonths andcan be measused Fovtews cf money must be accounted. fy- Charging of anaval deprectertfin to! Pregit € toss Ale fs a Cleay example of pexdfeity concept: i Stness should follace the accevnting yeay Wr Enttty Concept { — This concept States that proprettos ts different from business: Tus, + ProFTtS eomned duving the year axe shown as a Vability to the books | of oles: Owner fs treated as a credttor of the business, sot Po the, \ Wabiltty of +he business Lo set wen the money to the owner - Porpseet, this concept Ts to eliminate pex sonal transactions from business _ : Eransac tions: Capital 1s shown aS a lTabtlFey in the Balance Sheets | To this way, we can separate drawings capital * | 5+ Consesvaticm Concept [safety ! Prudence] - This concept states that all futeie anti pated looses have to be taken nto accounts BUT No future gatos can be taken into accounts uitthout xealtzing Pt Ceufthout toovsorety] . This concept Fs appited especfalty to closing Stock Ove to. th concept, closing stock fs valued at cast price k_ mice cdhichever %s Lowes Pyoutston fox bad debts ts made. concerts Proffts of the year ave understated d ve to this1} Concept Cnefi tYng I = : "expenses whith went tovsards generating sales have to be day Mls : a + " the books of accounts. Any expense which was tncowed but why, didn't 9° towards generating sales cannot he debiteds To stn ple Words, this Concent states that match all expenses galth all yevenves OF the same Ynancial yeas While taking Trading Alle, We subtwt Cres y expense. of the Upcoming. yen Ey Prepaid fs subteacted but Cutstanding §s_ addled as outstanding fs ef same year Whereas Prepaid 5 of next year: Example~ pyausi © Matern ~A ings Ale & ctoting Stock » Cost Concept _Chistoxical cost) ~ THES concept. states that all assets, muct appeat in the bulan ce Sheet at the psice foy which twas acquired the valve at which Poschesed the assets]. las % Realisation Conce pt is ~ Proftts can only be becked when sale has taken Hae Mexely becavsethe Valve of dostng stock has goreup, tt does not mean that prctits have bea made We cannot book! xecord puofits be fore Jee cou the goodss Chly after we sell them, we hook paot its: foy exe Gold poschased at Rod Lakh: Valve of told fnexeasod to Reto lathS* In the halance she, we most chao the value of gotdLas dtakh and not doo lakhs: SOU the geld fox Re doo lakhs , the valve only after vealPseds After x then only we can book prof ts. Record $+ Materfakty Concept Esrqnfttea nt | Tm pos tant] - THis. concept cays that.atl Important ftems have +0be ment foned % account* Th the absence of matesta Rey, wareng decicPone, can be taken Patse. can be omitted toaccounts. d. «ser Capttal tog tion Concept ee recy Connected toa capital ecset till 7 te Hnstalied | £8 @ past of the cost of assets Tt meang the expences needed. : 7 be brought an asset In, Working condittn must be added toassets | Pre -operating wets pilot tect wens Ctefal vons) and major overhaultne Expenses hecomes part of the cost of asset~ Majer oveshauig means | buy old machine > Repaty 9 Renovate T+ Reguisftfen Cost CCost of | penchased = Cest of old machine + Repatrs 4 Renovation Costs angle Legal Fees, Ynstallatfon fees for machinery, transpext charges on the | purchase cf foxnitore i Ad> Substance Ovex Fosin Concept i ~ This concept states that f ts ffancfal cubstance over legal form os | flow oF rnoneys Erample - Poschase of Lunds Here,te don't bying land ¢ Snovr place oF business: te just acquize acgutsstion ef lands Entire stock and business ‘loss "both will have to be recorded when destroyed tn fr4e 32- Fundamental Recounting Assumptions t = They ave the part of AS-4 [AS-Accounting Standazds] qrese tncluderr — facnd a Going Concesn Concept by Consistency Concept c Accrual Con ce pt fs -4 states that every business rust Com pulsorily Fellow these three, concepts CFendamental Accounting Assumptfons + a> Giving Concesm Concep t-T states that these must be 00 veator, fow the company to dis continve He operations in the neas futuxo, L your): Tt this Concept is not ther » all assets will be vanesat ‘eis TS a violation of Cost 2 ot Valve] pe [feot is et Realtsable Valve Lmask Realts atten Conce een. ET ee Sebc “Consistency Concept nef plos ~ It See TE ye aset of xules 63 accovettnda petod’ ples Gre Followed by a company, then hey must bE ame and Wott ie Followed throvghout the 1%e oF the company” DBeexcal Concept ~ TE states thet there ave two types oF accounting: ane fs cash accewnih, Heerval cence pl 1S based on And the other % mercantile accountings onded nthe beots MEz cantile accounting? To cane Lerpences ave ¥ec Sf accounts asdwhen they aredve and not on vecoept ba sts If so entespaise has ensoyed the faciity bet has not yet puld foy it, Ehe amount should be recorded fn the books of accounts: Example - Unpatt Rents Tr acesval, the cash flow fe de-linked from expenses Ancered ©> Fncome eayneds The Fund Endamental Aecoonting Assumpeins are enstaked assenption, Ten even PF nothing fs mentioned abovt them, they have to he fll and compulsorily followed *(©) Book-keeping 2. Purposes of an accounting system include all the following except (a) Interpret and record the effects of business transaction. (b) Classify the effects of transactions to facilitate the preparation of reports. (0). Dictate the specific types of business enterprise transactions that the enterprises may engage in 3, Book-keeping is mainly concerned with 1 @) Recording of financial data. by AL "\(b) Designing the systems in recording, classifying and summarising the recorded data. Hi AY \ i i rena the data for internal and external users. &) tate iger posting. {6 Management Accounting i er 6, Financial position of the business is, ascertained on the basis ‘(@)._ Records prepared under book-keeping process bi Trial balance, tov Balance Sheetuppl 8. Financial statements do not conside! (a) Assets expressed in monetary terms, {b) Liabilities expressed in monetary terms. (c) Assets and liabilities expressed in non-monetary terms 9. On January 1, Sohan paid rent of & 5,000. This can be classified as (a) Anevent. (b) Atransaction. (©) Atransaction as well as an event. 10. On March 31, 2015 after sale of goods worth % 2,000, he is left with the closing inventory of % 10,000. This is (a) Anevent. {b) A transaction. (c) Atransaction as well as an event. 1. Define accounting. What are the sub-fields of accounting? 2. Who are the users of accounts? 3. Discuss briefly the relationship of accounting with (i) Economics (i) Statistics i) Law 4. Discuss the limitations which must be kept in mind while evaluuiting the Financial Statements 8. ‘What services can a Chartered Accountant provide to the societyATi att ‘ eM heoretical Questions } Define accounting. What are the sub-fields of accounting? Who are the users of accounts? Discuss briefly the relationship of accounting with (i) Economics 0) Statistics. (iii) Law 4. Discuss the limitations which must be kept in mind while evaluating the Financial Statements. 5. What services can a Chartered Accountant provide to the society? ANSWER 1. Co) 2 (3) 3. (a) 4 (b) 5. fa) 6 (Ca) ) 9 (b) 10, (a)Users of accounts can be listed as Investors, Employees, Lenders, Suppliers and Creditors, Customers, Govt. and their agencies, public and Management. Refer para 1.10 for understanding the relationship of Accounting with Economics, Statistics and Law. Limitations which must be kept in mind while evaluating the Financial Statements are as follows: ‘The factors which may be relevant in assessing the worth of the enterprise don't find place in the accounts as they cannot be measured in terms of money. Balance Sheet shows the position of the business on the day of its preparation and not on the future date while the users of the accounts are interested in knowing the position of the business in the near future and also in long run and not for the past date. Accounting ignores changes in some money factors like inflation etc, There are occasions when accounting principles conflict with each other. Certain accounting estimates depend on the sheer personal judgement of the accountant. Differentaccounting policies forthe treatment of same item adds to the probability of manipulations. The practice of accountancy has crossed its usual domain of preparation of financial statements, interpretation of such statements and audit thereof. Accountants are presently taking active role in company laws and other corporate legislation matters, in taxation laws matters (both direct and indirect) and in general management problems. For details, refer Para 1.12.Multiple Choice Questions 1. (i) Allthe following items are classified as fundamental accounting assumptions except (a) Consistency. (b) Business entity. (2) Going concern, (ii) Two primary qualitative characteristics of financial statements are (a) Understandability and mate! (© Neutrality and understandability, (b) Relevance and reliability. (il) Kanika Enterprises follows the written down value method of depreciating machinery year after year due to (a) Comparability. (b) Convenience. (©) Consistency.Tote 00,000, ABET ET SR a ie re fotal assets increased by € 4,00,000 with corresponding increa: (v) Mohan purchased goods for %15,00,000 and sold 4/5th of the goods amounting %18,00,000 and met expenses amounting & 2,50,000 during the year, 2015. He counted net profit as % 3,50,000. Which of the accounting concept was followed by him? (a) Entity, (b) Periodicity. (© Matching. (vi) Abusinessman purchased goods for ¥ 25,00,000 and sold 80% of such goods during the accounting year ended 31st March, 2017, The market value of the remaining goods was % 4,00,000. He valued the closing Inventory at cost. He violated the concept of (a) Money measurement, (b) Conservatism. (©) Cost.) | y i WANT (vi) Capital brought in by the proprietor is an example of (a) Increase In asset and increase in liability : VAN A {b) Increase in iablty and decrease in asset 1) Increase it AA | lashet an lecrease in liability. AAO ANN fi)“ Assets'ate held Nhe blsiness for the purpose of ee ene hess ; (a) Resale, valent (b) Conversion into cash, (0 farningtevenue | | (i) Revenue ftom Sale of prSUuits Is denetally, realized in the period in which fa). Casts collected. (b) dale is made, (cy Product manufactured i) The concept of con: atism when applied to the balance sheet restration an accounting period is based on the ee (a) Objectivity. | (b) Materiality, {© Matching, Wi) Economic life of an enterprise is split into the periodic interval to measure its performance is as per (a) Entity, (b) Matching. (c). Petiodicity. Wan individual asset is increased, there will be a corresponding 2) Increase of another asset or increase of capital. (b) Decrease of another asset or increase of liability. (©) Decrease of specific liability or decrease of capital. (i) Purchase of machinery for cash {a) Decreases total assets: {b) Increases total assets. (©) Retains total agsets unchanged Consider the following data pertaining to Alpha Ltd: Particulars, en at ‘ Gi) Cost of machinery purchased bh [st April, 2016 Installation charges «9! yl 10,00,000 Jarket value ag on 21st My Accounts if the cc any values violnted by the Alpha Ltd? While finalizing the anny the follawing concepts (a) Cost, (b) Matching ©) Accrual2. icity concept: According to this concept accounts should be prepa notat the end of the life of the entity. For details, refer para 2.5. (iii) Accounting conventions: Accounting conventions emerge out of accounting practices, commonly known as accounting principles, adopted by various organizations over a period of time. For details, refer para 2.4. (i) Distinction between Money measurement concept and matching concept ‘As per Money Measurement concept, only those transactions, which can be measured in terms of money are recorded. Since money is the medium of exchange and the standard of economic value, this concept requires that those transactions alone that are capable of being measured in terms of money be only to be recorded in the books of accounts. Transactions and events that cannot be expressed in terms of money are not recorded in the business books. In Matching concept, all expenses matched with the revenue of that period should only be taken into consideration. In the financial statements of the organization if any revenue is recognized then expenses related to earn that revenue should also be recognized, (ii) Distinction between Going concern and cost concept Going Concern Concept The financial statements are normally prepared on the assumption that an enterprise is a going concem and will continue in operation for the foreseeable future, Cost Concept By this conc words, acquisition «: pt, the valu t. For of an as: t is to be determined on the basis of historical cost, in other