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3.2 Double Entry Book Keeping—CBSE XI

Generally Accepted Accounting Principles (GAAPs) means the rules or guidelines for recording
and reporting business transactions, in order to bring uniformity and consistency in the
preparation and presentation of financial statements.
• Features of Accounting Principles
1. Accounting Principles are man-made.
2. Accounting Principles are flexible.
3. Accounting Principles are generally accepted. The general acceptance of an Accounting
Principle usually depends on how well it meets the three criteria: relevance, objectivity and
feasibility.
• Accounting Principles can be classified into two categories:
1. Accounting Concepts, and 2. Accounting Conventions.
• Fundamental Accounting Assumptions or Concepts
1. Going Concern Assumption: The business will continue for an indefinite period and
there is no intention to close the business or downsize its operations significantly.
2. Consistency Assumption: Accounting practices once selected and adopted should be
applied consistently year after year.
3. Accrual Assumption: Transactions are recorded when they have been entered into and
not when the settlement takes place.
• Accounting Principles
1. Accounting Entity or Business Entity Principle: Business is treated as a separate
entity distinct from its owners.
2. Money Measurement Principle: Transactions and events that can be expressed in
money or in money terms are recorded in the books of account.
3. Accounting Period Principle: Life of an enterprise is divided into time intervals which
are known as accounting periods, at the end of which an income statement and position
statement are prepared to show the performance and financial position.
4. Full Disclosure Principle: According to this convention, financial statements should
be prepared and to that end, full disclosure of all significant information should be made.
5. Materiality Principle: Items or events having a significant effect should be disclosed.
6. Prudence or Conservatism Principle: Do not anticipate profits but provide for all
possible losses.
7. Cost Concept or Historical Cost Principle: The underlying principle of cost concept is
that the asset be recorded at its cost price, which is the cost of acquisition less depreciation.
8. Matching Concept or Matching Principle: Cost incurred during a particular period
should be set out against the revenue of that period to ascertain profits.
9. Dual Aspect Concept or Duality Principle: Every transaction has two aspects: one
aspect of a transaction is debited while the other is credited.
10. Revenue Recognition Concept: Revenue is recognised in the period in which it is
earned irrespective of the fact whether it is received or not during that period.
11. Verifiable Objective Concept: There must be objective evidence of transactions which
are capable of verification.