What went wrong when the king rode under the arch?

It was too low and knocked off his crown

How does the chain of blame unfold in the poem?

Each accused person blames another, ending with the king's own changes

What is the need for a theory base of accounting?

It brings uniformity and consistency to the recording, measuring and reporting of transactions so that information is reliable and comparable across firms and periods.

What does GAAP refer to?

It refers to the generally accepted rules or guidelines for recording and reporting business transactions to bring uniformity in financial statements.

Explain the business entity concept.

It assumes that the business and its owner are two separate entities, so the owner's capital is treated as a liability and personal transactions are not recorded in business books.

Why is the going concern concept important?

It allows the cost of an asset to be spread over its useful life rather than charged fully in the year of purchase, providing the basis for valuing assets.

State the fundamental accounting equation.

Assets = Liabilities + Capital, which follows from the dual aspect concept.

When is revenue recognised under the realisation concept?

Revenue is recognised when a legal right to receive it arises, i.e. when goods are sold or services rendered, not when cash is received.

What does the matching concept require?

It requires that expenses incurred in a period be matched against the revenues earned in the same period to ascertain correct profit or loss.

Distinguish between cash basis and accrual basis of accounting.

Under the cash basis, transactions are recorded only when cash is received or paid; under the accrual basis, revenues and costs are recorded when they occur regardless of cash flow.

What is the conservatism (prudence) concept?

It states that anticipated profits should not be recorded but all possible losses should be provided for, following the policy of playing safe.

What are the three components of GST?

CGST (Central GST), SGST (State GST) and IGST (Integrated GST), the last being charged on inter-state supply.

Theory Base of Accounting

Class 11 Accountancy · Financial Accounting Part I · Chapter 2

163 members in the CBSE community

View all

CBSE Class 11 · AccountancyTrending

Financial Accounting-I: 56 of 80 theory marks

Marks booster + cheatsheet: key concepts in 2 lines each, common traps
44 marks: Unit 2, recording to depreciation
Journal formats and special purpose books
Traps from all seven chapters
Bank reconciliation adjustments
Depreciation formulas, book's worked figures

Page 1 free about 8 min read, Full kit about 55 min read

₹159See the full kit

CBSE Class 11 · Accountancy

Financial statements: 24 of 80 theory marks

Marks booster + cheatsheet: key concepts in 2 lines each
12 exam traps, listed
Five calculations the paper keeps asking
Each adjustment: one entry, two effects
Both formats: trading and P&L, balance sheet
Yogita illustration solved line by line

Page 1 free about 8 min read, Full kit about 55 min read

₹159See the full kit

View all 44 amazing Marks Booster kits →

Summary

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.

Generally Accepted Accounting Principles (GAAP)Basic accounting conceptsSystems of accounting: double and single entryCash and accrual basis of accountingAccounting Standards and Goods and Services Tax (GST)

Key terms

GAAP

Generally Accepted Accounting Principles—the rules and guidelines adopted for recording and reporting transactions to bring uniformity in financial statements.

Business Entity Concept

The assumption that the business has a distinct and separate existence from its owners, so their personal transactions are excluded.

Going Concern Concept

The assumption that a business will continue its operations for a fairly long period and will not be liquidated in the near future.

Dual Aspect Concept

The principle that every transaction has a two-fold effect, expressed as the accounting equation Assets = Liabilities + Capital.

Conservatism (Prudence)

The concept that profits are not recorded until realised but all anticipated losses are provided for.

Accounting Standards

Written policy documents issued by the ICAI covering recognition, measurement, presentation and disclosure of accounting transactions.

Extra questions & answers

Try one from this chapter

GAAP stands for:

Flashcards & interactive practice