The following are the generally accepted Accounting Assumptions.1) Concepts at the recording stage. These are concepts to be observed at the recording stage of transaction i8n books of account. They are discussed in brief below.a) Business Entity Concept.Accounting treat business as different from the person who owns it. Without such a distinction the affairs of the business would be mixed up with private affairs of the owners and the true picture of the financial position of the business and it’s profit will not be available.b) Dual Aspect Concept.Each transaction in accounts has two aspects which are expressed as Debits and Credits and are recorded in the books of the account accordingly. This principle is the Core of Double Entry System of Book Keeping and if it is observed strictly, the system of recording transactions in books of account is called Double Entry System of Book Keepingc) money measurement Concept.Accounting records only those transactions which can be recorded in monetary terms.d) Cost concept.As per this concept transactions are recorded at the amount involved while assets are always recorded at cost. For eg one book of Rs50/ is bought for Rs100/ by mistake then also the entry in the books of the books of account is to be made at the cost price ie Rs100/e) Objective evidence concept.According to this concept all transactions recorded in the books of accounts should be evidenced and supported by objective documentary evidence.f) Historic record concept.Transactions are recorded in the books of account as and when they take place. Ie in chronological manner date wise.2) Concept at reporting stageThese are concepts to be observed at the reporting stage ie the time of preparation of final accounts from the transactions recorded in the books of account. They area) Matching cost against Revenue concept.Accounting records at the same time and at the same period not only the income but all the expenses incurred to earn the income. Thus it matches the income with the cost incurred to earn it before showing any profit or loss of that activity.b) Accrual concept.Accounting is normally done on accrual basis. Ie income and expenses are recorded as and when they become due and not as and when they are actually paid and received. However this concept is not followed by Banks to day. Bans recognize interest income on loans only when cash is received from the borrower.c) Going concern concept.Accounting presumes that the business will exist for a long time and it’s owners are not desirous of closing it.d) Accounting period concept.When accounts are prepared generally for a period of 12 months in India, this period is normally 1st April to 31st March of the next colander year. This concept is important as it provides a cut off for measurement of profits in the otherwise continues business process.3) Accounting conventions.This is an accepted accounting principle. The following are the Accounting conventions.a) Consistency,Accounting systems should be consistent Let us say a company is adopting straight line method of depreciation then it should follow the same method consistently all the years.b) Disclosure.Significant accounting systems should be disclosed while preparing accounts.c) Conservatism.All future losses should be accounted in the year itself. But all the expected income are not accounted for till realization.d) MaterialityA good accounting practice should disclose all the material events, policies etc used in the preparation of financial statement.Common Accounting system for Primary Agricultural Credit Society (PACS)PACS is a business entity undertaking credit and non credit business.Non Credit business of PACS are divided into five broad groups depending up on the nature of activities and materials the PACS deal in. These groups are for trading ini) Agricultural inputs.ii) PDS commoditiesiii) Non PDS consumer itemsiv) Food grains and other commodities under procurement schemesv) Socially relevant schemes like Mid Day Meal Scheme.Double entry system.Every business transactions involves transfer of money from one account to another and thus the transfer necessarily involves two accounts in opposite directions. The Double entry systems of Book Keeping records both aspects of every transaction and therefore follows the rule that every debit must have a corresponding credit and vice versa. This rule helps to check the arithmetical accuracy of records by preparing the Trial Balance statement. Accounts maintained under the single entry system record only one aspect of the transaction and the record is therefore incomplete.Certain rules must be observed in recording transactions under double entry system. The two elements of every transaction must be grouped under three types of accounts and each type of account has it’s ru8le for recording the debit and credit aspect of the transaction.The two principal type of accounts are one personal accounts and other Impersonal accounts. Personal accounts are subdivided into a) Real or asset accounts and b) nominal accounts. Personal account contains record of transaction with a person that could be an individual group or society banks etc. Real accounts are accounts of properties or assets and contain a record of purchases and sales of the properties or assets like land building goods cash etc. Nominal accounts are accounts of expenditure and income and record gains and losses. The accounting rules to be followed for the three types of accounts are.
Solution of Balance sheet case studyBalance Sheet of XYZ PAC as on 31.3.2010.
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