GNDU B.Com (Bachelor of Commerce)
GNDU B.Com (Bachelor of Commerce)

GNDU B.Com (Bachelor of Commerce) — Semester 1

Semester 1 · 24 chapters
Summary, key terms, extra questions with answers and a practice quiz with AI diagnosis for each.

Chapter 2: Accounting Principles (GAAP) and Capital versus Revenue Items Semester 1 — summary, notes, extra questions & MCQ quiz

Summary

Generally Accepted Accounting Principles (GAAP) are the common rules, concepts and conventions that give accounting information uniformity, comparability and reliability. They are usually grouped into accounting concepts (basic assumptions) and accounting conventions (customs followed in practice). Key concepts include the business-entity concept (the firm is separate from its owner), going-concern (the business will continue indefinitely), money-measurement (only money-measurable facts are recorded), cost concept (assets recorded at historical cost), dual-aspect, accounting-period, matching, realisation and accrual concepts. The chief conventions are consistency, full disclosure, materiality and conservatism (prudence). These principles are not legal rules but agreed standards that make statements meaningful, though they involve estimation and historical-cost bias, which limits them. A practical application of these principles is the distinction between capital and revenue items. Capital expenditure benefits the business for more than one accounting period and is shown in the Balance Sheet (for example, purchase of machinery), whereas revenue expenditure is consumed within the period and is charged to the Profit & Loss Account (for example, wages and rent). Similarly, capital receipts (such as sale of a fixed asset or capital introduced) differ from revenue receipts (such as sales and commission earned). Correct classification is vital because misclassification distorts both the profit figure and the financial position.

Accounting conceptsAccounting conventionsNature and purpose of principlesLimitations of GAAPCapital vs revenue expenditureCapital vs revenue receipts

Key terms

GAAP
Generally Accepted Accounting Principles: the concepts and conventions guiding accounting practice.
Going-concern concept
The assumption that the business will continue operating for the foreseeable future.
Matching concept
Expenses of a period are set against the revenues of the same period to find true profit.
Conservatism (prudence)
Anticipate no profit but provide for all possible losses.
Capital expenditure
Outlay whose benefit extends beyond one accounting period; shown in the Balance Sheet.
Revenue expenditure
Outlay whose benefit is exhausted within the accounting period; charged to Profit & Loss Account.

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Practice quiz · Accounting Principles (GAAP) and Capital versus Revenue Items

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GNDU B.Com — Accounting Principles (GAAP) and Capital versus Revenue Items

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