Accounting class 11 chapter 2 notes

 General Accepted Accounting Principles

GAAP- GAAP is a collection of commonly followed accounting rules and regulation for financial reporting. These rules are established by "International Financial Accounting Standard Board" It will be hard for a investor if different companies have different accounting principles. So, to make it easy and uniform these worldwide accepted rules were made by IFASB. It provide correct information,with less errors and mistake.

#Features of GAAP

1.Relevance- It provides necessary important information in a correct and proper way and help in decision making.

2.Reliable- As everyone follows same rules,there will be less errors and mistake. The information won't have any issues.

3. Understandability- All the information will be easy to understand as there are common rules and regulation.

4. Comparability-    If all the companies follows same accounting principles, it can be easily compared and it will be beneficial to the investors.

2.What are the different type of accounting concept?

a.Business entity concept-

According to this concept, the business organization and the owner of the business are different entity/parties. They should be treated as separate entities. for eg if the owner of business buy house for his personal use it should not be mixed in business transaction. This makes possible to record only transaction of business(nothing personal of owner)  

b. Money measurement concept-

This concept explains that monetary term or value are only recorded in book of accounts. The transaction which can't be measured in monetary value are not recorded in books of account.

c.Going Concern Concept-

According to this business is a going concern and operate for a long term or period of time.

d. Accounting Period Concept-

A business continues for long term ,profit and loss taken after very long period won't be useful so the life of business is divided into different periods(generally 1 year) to know the result of how business is operating.

e.Realization Concept-

According to this concept, revenue is regarded in the period in which it is earned, irrespective of the fact whether it's received or not. for eg salary of last year can't be recorded this year.

f. Cost concept-

According to this concept, all the asset are recorded in the book of account at their cost price ignoring the current market price.

g.Matching concept-

According to this concept, the annual revenue or profit of business should be compared annual expenses in order to know operating result.

h. Dual Concept-

According to this concept, every financial transaction has two effects on debit and credit side with the same amount.

i. Full Disclosure Concept-

According to this concept,  all the  significant information relating to the business should be fully disclosed in the financial statement.

Accounting convention- They are a set of common pratices that act as guidelines while recording business transaction.

a. Materiality -

 The materiality convention states that all the significant item, event that may affect the decision should be recorded. Material facts refers to any items or event, which may make difference in a decision.

b. Consistency-

The consistency convention states that, accounting practice once selected and adopted , a business must follow the same accounting principles and method in future. The consistency enables us to compare financial statement of different time period.

c. Conservatism-

This convention says that business must tak consideration of the unexpected or the worst case possible and must record profit only when they are realized.

d. Industry Practices-

Industries are those accounting issues that are unique to specific industry and are used instead of normal accounting practices and reporting. for eg. financial statement of oil gas, mining and other industries will vary from normal industry.

#Accounting Standards- 

The common set of principles, rules and procedure which define the basis of accounting policies and practices and improves the transparency of financial reporting in all countries are called accounting standard . It acts as a guideline in accounting.

Nature of accounting standard 

1. Guide-

Accounting standard are the guidelines during accounting process which provide basic of preparing accounts and financial statement.

2. Compulsory to follow-

Accounting standard are must to follow for companies.

3. Formed according to law-

they are formed according to law.

4. Serve as Harmonizer-

They help to bring uniformity in accounting system.

5.Flexible in nature-

They are flexible in nature and can be changed in some situations.

#Nepal Accounting Standard-  

NAS is a legal body which sets accounting and financial standards and principles for business enterprise in Nepal.

#Nepal Financial Reporting Standard- 

Nepal financial reporting standard is a common accounting and reporting language which aims to bring a common base for presentation, measurement, treatment and disclosure for financial events.