1. Generally Accepted Accounting Principles (GAAP)
GAAP refers to the rules or guidelines adopted for recording and reporting of business transactions, in order to bring uniformity in the preparation and presentation of financial statements.
2. Basic Accounting Concepts
- Business Entity Concept: Business is treated as a separate entity from its owner.
- Money Measurement Concept: Only transactions expressed in money are recorded.
- Going Concern Concept: Business will continue for a foreseeable future.
- Accounting Period Concept: Life of business is divided into small periods (usually 1 year).
- Cost Concept: Assets are recorded at their purchase price (historical cost).
- Dual Aspect Concept: Every transaction has two aspects (Debit and Credit). Assets = Liabilities + Capital.
- Revenue Recognition Concept: Revenue is recognized when right to receive is established.
- Matching Concept: Expenses incurred to earn revenue must be matched against that revenue.
- Full Disclosure Concept: All significant information must be disclosed.
- Consistency Concept: Accounting methods should remain consistent year after year.
- Conservatism (Prudence) Concept: Anticipate no profit, but provide for all possible losses.
- Materiality Concept: Focus on material facts; ignore insignificant details.
3. Systems of Accounting
- Double Entry System: Records both aspects (Debit & Credit) of a transaction. Comprehensive and reliable.
- Single Entry System: Incomplete records. Only cash and personal accounts are maintained.
4. Basis of Accounting
- Cash Basis: Records revenue/expenses only when cash is received/paid.
- Accrual Basis: Records revenue/expenses when they are earned/incurred, regardless of cash flow. (Recommended by Companies Act).
5. Accounting Standards (AS)
Written policy documents issued by expert accounting body (ICAI in India) covering aspects of recognition, measurement, treatment, presentation, and disclosure of accounting transactions.
6. Goods and Services Tax (GST)
One nation, one tax. Integrated indirect tax system in India.
- CGST: Central GST (Intra-state)
- SGST: State GST (Intra-state)
- IGST: Integrated GST (Inter-state)