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Paper            1     Principles and Practices of Accounting                Theoretical Framework 1.13





           Table 1.2 Accounting Concepts, Principles and Conventions


             Accounting Concepts              Accounting Principles            Accounting Conventions
               ƒ Concepts  – Idea or    Accounting principles are a    Emerge out of account-
                                                                              ƒ
                                       ƒ
              notion which has uni-       body of doctrines commonly             ing practices  adopted
              versal application.         associated  with the  theory           by  the  organisations

               ƒ Basic  conditions and    and procedures of account-             over time.
              assumptions,  which         ing  serving  as an explanation        ƒ To  improve the  quality
              form the  basis  upon       of current  practices  and as          of accounting  informa-
              which  the  accoun-         a guide for selection of con-          tion, accountancy bodies
              tancy has been laid.        ventions or procedures where           of the world may change
                                          alternatives exist.
               ƒ Accounting concepts                                             any of the conventions.
              lays foundation upon         ƒ Accounting principles should be:
              which the accounting            ○ Consistently followed.
              principles are formu-           ○ Based on real assumptions.
              lated.
                                              ○ Able to reflect future pre-
                                             dictions.

                                              ○ Simple,  explanatory  and
                                             understandable.

                                              ○ Informational for the users.


           Now let us see the various accounting concepts on which accounting is based.



           1.12.1 Entity Concept

           Entity concept states that business is a “separate identity apart from its owner”. Own-
           er’s transactions are recorded separately in his personal books and business transactions
           in business books of accounts. It helps to keep business affairs free from the influence
           of the personal affairs of the owner.

             Entity concept states that the organisation is liable to the owner for the capital in-
           vested by the owner. The owner has claim on the profit of the organisation since they
           have invested capital.




           POINT TO REMEMBER


           In case of corporate entities, the portion of profit apportioned to the
           owner becomes current liabilities in case it is immediately payable.










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