CONSISTENCY CONCEPT

This concepts states that accounting policies and practices followed by enterprises should
be uniform and consistent over the period of time.
This will help in better understanding of information and will make it comparable with
that of previous years.

2017-2018 2018-2019 2019-2020

value

valu
e
Method once chosen should be applied consistently year after year.
CONSERVATISM CONCEPT
This concept of requires that profits should not to be recorded until realised, but all losses
even those which may have a remote possibility, are to be provided for in the books of
account.
This concept ensures that the financial statements present a realistic picture of the business.
It is also called as concept of Prudence.

COST PRICE : Rs.10,000.

MARKET VALUE : Rs.12,000.
Recorded in the books at Rs.10,000
MATERIALITY CONCEPT
This refers to relative importance of an item or event.
The materiality of a item depends on its nature and the amount involved and accounting
should focus on material facts.
If the item is likely to influence the decision of an investor or creditor, it should be regarded
as material, and shown in the financial statements.

ASSET=?
OBJECTIVITY CONCEPT
The concept of objectivity requires that accounting transaction should be recorded in an
objective manner, free from the bias of accountants and others.
This can be possible when each of the transaction is supported by verifiable documents or
vouchers.
 INTERNATIONAL FINANCIAL REPORTING STANDARS
➢ It is difficult to understand and compare worldwide financial information without a
common set of accounting.
➢ Therefore, there is a need of single set of accounting standards that can unify the
accounting practice worldwide.
➢ This would facilitate investment and economic decisions across borders.
❖ International Accounting Standards Board has issued IFRS to improve
the financial reporting internationally.
Need for IFRS
❑ IFRS helps in global harmonisation. This will bring in uniformity and facilitate
comparison of financial statements.

❑ IFRS helps to prevent manipulation or errors in financial statements.

❑ It facilitates global investment.

 Basis of Accounting

CASH BASIS ACCRUAL

BASIS

Revenues and costs are

Transactions are recorded recorded in the period in
when cash is received or paid. which they occur rather when
they are received/paid.
Ashok sold goods to Vijay during the year 2017-18 (1st Apr 2017 – 31st Mar 2018) for
Rs.1,00,000.
Ashok received the amount in the year 2018-2019 (1st Apr 2018- 31st Mar 2019).
In which accounting year will Ashok record this transaction in the books, if his
business follows:
i) Cash Basis
ii) Accrual Basis.

Ans: Cash Basis – 2018-2019.

Accrual Basis – 2017-2018
Rent for the month of February 2020 is paid in the month of January 2020 of Rs.1,000.
In which month will this transaction be recorded according to:
i)Cash basis and ii) Accrual Basis
Ans: Cash Basis – January 2020.
Accrual Basis – February 2020.
Why accrual basis is preferred by accountants?
Accrual Basis shows complete picture of the transaction taking into account prepaid
and outstanding.
Reflects the true profit/loss for the accounting period.
It follows the accounting concept of Revenue Recognition and Matching.
Accounting Concepts
▶ ACCOUNTING PERIOD CONCEPT
▶ BUSINESS ENTITY CONCEPT
▶ COST CONCEPT
▶ CONSISTENCY CONCEPT
▶ CONSERVATISM CONCEPT
▶ DUALASPECT CONCEPT
▶ FULLDISCLOSURE CONCEPT
▶ GOING CONCERN CONCEPT
▶ MONEY MEASUREMENT CONCEPT
▶ MATCHING CONCEPT
▶ MATERIALITY CONCEPT
▶ OBJECTIVITY CONCEPT
▶ REVENUE RECOGNITION CONCEPT
 THANK YOU
AND
HAPPY LEARNING