Theory Base of Accounting — Class 11 Accountancy

To make accounting information reliable and comparable, a sound theory base is required. The theory base consists of principles, concepts, rules and guidelines developed over time, together with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI). Generally Accepted Accounting Principles (GAAP) are the rules adopted for recording and reporting transactions to bring uniformity in financial statements; the terms principles, concepts and conventions are used interchangeably as basic accounting concepts. The important concepts are business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition (realisation), matching, full disclosure, consistency, conservatism (prudence), materiality and objectivity. The dual aspect concept gives the fundamental accounting equation, Assets = Liabilities + Capital. Transactions may be recorded under the double entry system, which records both aspects of every transaction, or the single entry system, which is incomplete. From the timing of recognition, accounting may follow the cash basis (recording when cash is received or paid) or the accrual basis (recording when revenues and costs occur). Accounting Standards are written policy documents covering recognition, measurement, presentation and disclosure, issued to bring uniformity and comparability. The chapter also explains the Goods and Services Tax (GST), a destination-based tax with CGST, SGST and IGST components.