Theory Base of Accounting Test - 65

IASB  has replaced IAS and has adopted 41 International Accounting Standards and SIC (Standards Interpretation Committee). Though there has been certain modifiactions as per the changing environment in certain IASs.

Accrual accounting recognizes revenue and expenses when they are incurred, regardless of when cash is exchanged. The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when payment is received.

According to Prudence when there are different alternatives for recording a transaction, the one having least favorable immediate effecr on profits or capital should be adopted. Thus we record closing stock at Cost price or market price whichever is lower. As we have to make provision for all anticipated losses but not record anticipated profits.

According to the dual aspect concept (also known as the duality principle), every business transaction has two aspects: a debit aspect and a credit aspect. This principle is fundamental to double-entry accounting, where each transaction affects at least two accounts with equal debits and credits, maintaining the accounting equation (Assets = Liabilities + Equity) in balance.

As per Going concern concept it is assumed that the business will continue to exist for a long period in the future. The transctions are recorded in the books of the business on the assumption that it is a continuing enterprise, unless otherwise.

According to prudence concept, all anticipated losses should be recorded in the books of accounts, but all anticipated or unrealised gains should be ignored. in other words it is the policy of playing safe. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty.

Accoring to accrual concept revenue is recognized when it is earned and expenses is recognised when an obligation of payment arises. Thus Rent of the month of march 2012, though not paid will be recorded as expenses for the year ended 31st March, 2012.

Over a period of time, a number of Generally Accepted Accounting Principles (GAAP) in the form of concepts and conventions have been developed and accepted to bring comparibility and uniformity in the financial statments of various business entities.

The IFRS refers to the 'Interantional Financial Reporting Standards' which are issued by IASB i.e International Accounting Standard Board.

Consistency concept states that accounting principlea and methods should remain consistent from one year to another. These should not change from year to year, in order to enable the management to compare the Profit & loass account and Balance Sheet of different periods and draw important conclusion about working of the enterprise. Thus Straight Line method used in one year should be followed next year also.