Twelve Accounting Principles• Money measurement

• Business entity

• Going concern

• Value equals costs

• Dual aspect

• ‘Accruals’ or

‘matching’ concept

• Provisions

• Time period

• Realisation

• Conservatism (Prudence)

• Consistency

• Materiality

The dual aspect of accounting transactions

Sum of assets = Sum of liabilities

Total assets = Current assets + Fixed assets +

+ Investments + Patents and other deferred

revenue expenditure

Total liabilities = Capital + Reserves + Loans

+ Expenses not paid for or provisions +

Creditors for materials/goods/services

Dual aspect of accounts (contd.)What is the dual aspect of accounting

transaction?

Any accounting transaction affects not one accounting head but two accounting heads.

Example - Creditor outstanding is paid by means of cheque drawn on current account with a bank. The level of creditors comes down due to this payment (liabilities) while the level of bank balance also comes down (assets)

Dual effect of accounting transaction- examples (contd.)

You introduce capital and pay off bank liability with that amount

Effect - The capital that has been introduced

increases the liability to the owners while

the reduction in bank liability reduces bank

borrowing to the same extent.

Dual effect of accounting transaction (contd.) - examples

Income already received, but a part of it or whole of it pertains to the next accounting period - income received in advance

You have an outstanding debtor to the extent of Rs. 1 lac. The outstanding bill gets paid and you deposit the cheque in your current account.

Effect - The outstanding debtors reduce to nil (asset) and the current account balance gets increased by Rs.1lac (another asset)

Dual effect of accounting transaction - examples (contd.)

You make payment of a car repairs bill in cash.

Effect - Expenditure for the year increases - Expense account is affected

Cash account is affected as cash has been given out.

Dual effect of accounting transaction- examples (contd.)

Rent income is received in cash.

Effect - Income level goes up for the accounting period

Since cash has been received the cash balance also goes up.

Thus in all the examples that we have seen, two account heads invariably get affected. That is why it is called double entry book-keeping.

Accrual system of accounting

• Accounting period is of importance for

recognising an expense or income. Whether

cash has been spent or come in is of no

consequence

• As a result of this, we have four important account heads in the balance sheet of the company at the end of the accounting period

Accrual system of accounting

The important account heads in the balancesheet arising out of the accrual system ofaccounting are:• Expense already met, but a part of it or

whole of it pertains to the next accounting period - pre-paid expense

Accrual system of accounting

• An expense pertaining to the current accounting period but not yet met - it has to be booked as an expense during this period. Called by different names, provision, accrued expenses etc.

• An income pertaining to the current accounting period but not yet received - it has to be booked as an income during this period. Called accrued income.