Generally Accepted Accounting Principles(GAAP) and Basic Accounting Concepts

Fundamentals of Accountancy

Generally Accepted Accounting Principles (GAAP):

The Financial statements that are Prepared are base upon certain theoretical, accounting principles named as Generally Accepted Accounting Principles (GAAP). GAAP Provide guidelines that which can be categorized into basic assumptions, principles, modifying principles and accounting standards.

Basic Accounting Concepts

The basic Concepts of Accounting provides foundation for recording transactions and to prepare financial statements. The Accounting Concepts form the basis systematic accounting practices. The following are some of the important accounting Concepts

Money measurement Concept

In accounting, all the transactions are measured using a common use of measurement, money. The recording of events which can be measure or expressed in terms of money is called Money measurement Concept.

Business Entity Concept

The Business Entity Concept is viewed Business as an entity, separate from its Owners, that is Business is assumed to have a distinct entity (Existence) other than the existence of its proprietors.

Generally, Business entity and Money measurement Concept are called Fundamental Accounting Concepts as they go to very roots of financial accounting.

Going Concern Concept

The Going concern Concept is assumed that business has a reasonable expectation of continuing business at profit for indefinite period of time. A Business unit is deemed to be a going concern and not a gone concern. It helps the owners in continue to operate in future.

Cost Concept

The Cost Concept is a close relative concept of going concern concept as it the concept records transactions of fixed assets. The Fixed assets are valued at at cost price i.e., Price paid at the time of acquisition.

Dual- Aspect Concept

This is the basic Concept of accounting. According to Dual- Aspect Concept

Every transaction of finance involves two – fold aspect

1. Yielding of a benefit

2. Giving of that benefit

For example: if a Business had acquired an asset, it must be given up with some other asset such as cash, credit (obligation to pay it for future).

Periodicity Concept

The measurement of income or loss of a Business Entity is relatively simple on whole – life basis. The periodically concept generate financial statements for relatively shorter periods such as yearly or Quarterly, so that Performance of the company can be measured and compared.

Objective Evidence concept

The Objective evidence Concept means that all accounting entries should be supported with evidence by the business documents such as invoices, vouchers and so on.

Matching Concept

As per the matching concept, the revenue that is must be set off against the expenses incurred to generate that revenue in an accounting period which gives the true picture of the profit earned during the accounting period.

Realisation Concept

It is the concept which deals with how the revenue is recognized by the business. The revenue is recognized by the goods and services are delivered in quantities or amounts that are reasonably certain to be realised.

Legal Aspect concept

The legal aspect concept requires the legal requirements of accounting records and statements. The statements and accounting records are maintained in the manner provided by the Law.

Accrual Concept

Accrual is the method of accounting that recognise the earnings of revenue rather than due or collected and expenses when incurred rather than when paid. Thus transactions are recorded on the basis of income earned or expense incurred, irrespective of receipt or payment.