Some Exam Important Accounting Principles - 2018

Dual Aspect Principle: According to this principle, every business transaction has two aspects-a debit and a credit of equal amount In other words, for every debit there is a credit of equal amount in one or more accounts and vice-versa.

The system of recording transactions based on this principles is called as "Double Entry System".

Due to this principle, the two sides of Balance Sheet are always equal and the following accounting equation will always hold good at any point of time.

Assets = Liabilities + Capital

Example: Ram started business with cash Rs. 1,00,000. It increases cash in assets side and capital in liabilities side by Rs. 1,00,000.

Assets (Rs. 1,00,000) = Liabilities + Capital (Rs. 1,00,000)

            

                    Base of Accounting

There are two bases of ascertaining profit or loss, namely

(1) Cash basis, and (2) Accrual basis

1. Cash Basis of Accounting: Under this system of accounting transactions are recorded in the books of accounts only on the receipt/payment of cash. The income is calculated as the excess of actual cash receipts (in respect of sale of goods, service, properties etc.) over actual cash payments (regarding purchase of goods, rent, electricity, salaries etc.)

Entry is not recorded when a payment or receipts is merely due i.e., outstanding expenses, accrued income are not treated.

This method is contrary to the matching principle.

2) Accrual Basis Of Accounting: Under this system of accounting, revenue and expenses are recorded when they are recognized i.e., income is recorded as income when it is accrued (when transaction takes place)

Irrespective of fact whether cash is received or not. Similarly expenses are recorded when they are incurred or become due and not when the cash is paid for them.

Under this system, expenses such as outstanding expenses, prepaid expenses, accrued income and received in advance are identified and taken into account.

Under the companies amendments Act 2013, all companies are required to maintain their accounts according to accrual basis of accounting.

Accrual basis of Accounting	Cash basis of accounting
1) Recording Both cash and credit of transactions	1) Recorded Only cash transaction are recorded
2) Correct Profits and Loss is ascertained	2) Correct Profit and Loss is not ascertained.
3) Recognized under the companies Act	3) Not recognized under the           Company Act.
4) Make distinction between Capital and revenue nature items.	4) Not Make distinction