3. ACCOUNTING
• The process of recording of business
transactions is called accounting.
OR
• The action or process of keeping
financial accounts is called accounting.
4. The rules that govern accounting are
called GAAP (Generally Accepted
Accounting Principles).
• Provides a fair financial image of the company.
• Provides with different Information:
• Revenue recognition.
• Balance sheet item classification.
• Outstanding share measurements
5. • The common set of accounting
principles, standards and
procedures.
• Combination of authoritative
standards (set by policy boards)
and simply, the commonly
accepted ways.
6. Main Categories of GAAP
• Assets: An asset is an item of value
owned by a company.
• Liabilities: In accounting, liabilities are
obligations of the company, to transfer
something of value to another party.
• Equity: Equity is the owner's value in
an asset or group of assets.
7. The GAAP principles are divided
into two categories
1. Accounting Concepts: Accounting Concepts are
basic assumptions or conditions upon which
science of accounting is based.
2. Accounting Conventions: Accounting Conventions
include those customs and traditions which are
followed up by an accountant while preparing a
financial statement.
8.
9. Accounting Concepts
Separate Entity Concept
• It is helpful in keeping the business affairs
strictly free from the effect of the private
affairs of the proprietor(s).
• Amount invested by the proprietor is
shown as “ capital”.
• Amount paid for the personal expenses of
the proprietor are shown as drawings from
the capital of the proprietor.
10.
11. Money Measurement Concept
Only the transactions which can be
recorded in terms of money are recorded.
This is being used so as to provide a
common yardstick (i.e. money) for
measurement.
12.
13. Matching Concept
It is the basis for recording expenses and
includes two steps:
1. Identify all the expenses incurred during
the accounting period.
2. Measure the expenses and the match the
expenses against the revenues earned.
Revenues – Cost = Net income or Profit.
14.
15. Going Concern Concept
Business would continue to operate
indefinitely in the future. Business will not
cease doing business, neither; it will sell
its assets to pay off its liabilities
16.
17. Cost Concept
Assets and liabilities
should be recorded at the
historical cost i.e. costs
as on acquisition.
18.
19. Accounting Period Concept
Accounting period is the span of time, at the end of
which financial statements are prepared to throw
light on the results of the operations at the end of a
relevant period and the financial position at the end
of a relevant period.
20.
21. Realization Concept
The Revenue principle governs two things:
1. When to record revenue
2. Amount of revenue to record
To be recognized, revenue must be:
Earned: Goods are delivered or a service is
performed.
Realized: Cash or claim to cast (credit) is received
in exchange for goods and services rendered.
22.
23. TWO ACCOUNTING
CONVENTIONS GAAP
PRINCIPLES
Full Disclosure
Financial statements should be honestly
prepared and sufficiently, disclose information
which is of material interest to proprietors,
present and potential creditors and investors
24.
25. Materiality
Only material or significant details are
to be recorded leaving the insignificant
or minute details. This is done to prevent
overburdening of accounts.
26.
27. Referrences
Mabunda, S (2014). GAAP principles. Available on slideshare.
ps://www.slideshare.net/siphiwewindy/gaap-principles-class-presantation-
32032326?qid=8a6560bb-1548-45d8-89b0-2ccdfb0d7fb1&v=&b=&from_search=1
Ishita, S (2013). GAAP principles. Asvailable on slideshare.
https://www.slideshare.net/ishitashah169/gaap-concepts-and-importance-of-
accounting?qid=56927b96-4806-44a5-9f62-87efcd54d15b&v=&b=&from_search=4
Amarhindu, Z (2008). GAAP principles. Available.
https://www.slideshare.net/amarhindu/comparison-of-accounting-standards-
presentation?qid=42fc4888-012d-401a-b857-a7ba8076a6f1&v=&b=&from_search=1
28. Ryan, V (2016). GAAP principles. Available on slideshare.
https://www.slideshare.net/mary88ryan/accounting-nios-
2?qid=c6b092a3-99b5-4860-8223-
2a94fe2bca46&v=&b=&from_search=4
sherry, D (2016). GAAP principles. Available on slideshare.
https://www.slideshare.net/DivyaeSherry/gaap-generally-accepted-
accounting-principles-concepts-and-conventions?qid=d65d3b84-
be42-41d6-bff3-755428426c01&v=&b=&from_search=5