Theory Base of Accounting

Theory Base of Accounting

The theory base of accounting consists of principles, concepts, rules, and guidelines that have been developed over time in order to bring uniformity and consistency to the accounting process as well as to increase the utility of accounting information to different users of accounting information. Additionally, the Institute of Chartered Accountants of India (ICAI), which serves as the country's regulatory body for standardisation of accounting policies, has issued Accounting Standards, which are expected to be adhered to consistently in order to ensure consistency in the country's financial reporting. These will be addressed in more detail in the sections that follow.

Generally Accepted Accounting Principles

In order to ensure uniformity and consistency in accounting records, some rules or principles have been established and are widely recognised by the accounting profession. These rules or principles are described below. These rules are referred to by a variety of titles, including principles, ideas, norms, postulates, assumptions, and principles that alter other principles.

The American Institute of Certified Public Accountants (AICPA) defines the word "principle" as "a general law or norm chosen or proclaimed as a guide to behaviour, an established foundation or basis of conduct or practise." The phrase "in a general fashion" refers to the way in which something is applied to a large number of people, situations, or events. As a result, generally accepted accounting principles (GAAP) refer to the standards or guidelines that have been established for the recording and reporting of business transactions in order to ensure consistency in the production and presentation of financial statements in the United States. 

For example, one of the most essential rules is to record all transactions on the basis of historical cost, which can be verified via the use of supporting documentation such as a cash receipt for the money spent. This improves the impartiality of the recording process and increases the acceptability of the accounting statements among a wider range of consumers.

In the course of time, past experiences, usages, and customs, statements by individuals and professional bodies, and regulations by government agencies have all contributed to the development of the Generally Accepted Accounting Principles, which are generally accepted by the majority of accounting professionals. The concepts of accounting, on the other hand, are not static in nature. Changing legal, social, and economic environments, as well as the demands of the public, have a continuous impact on these systems.

These principles are referred to as ideas and norms in other contexts. Accounting concepts are defined as essential assumptions and notions that are basic to accounting practise, while accounting conventions are defined as norms or traditions that are used to govern the production of financial statements. In practise, the same rules or guidelines have been presented as a concept by one author and as a set of rules or guidelines by another.

Theory Base of Accounting 25 is referred to as a postulate by one source and as a convention by another. At times, this may be perplexing for the students to comprehend. We should not get bogged down in the semantics of these words; instead, we should focus on their applicability in real life situations. From the standpoint of practicability, it is noted that the different words such as principles, postulates, and hypotheses are all ambiguous.

Conventions, modifying principles, assumptions, and other similar terms have been used interchangeably and are together referred to as Basic Accounting Concepts in the current day and age.




    • Related Articles

    • Role of Accounting

      Accounting's function has evolved throughout the ages in response to changes in economic growth and social needs. It measures, classifies, and summarizes a large amount of data from an organisation, and then reduces that data into reports and ...
    • Objectives of Accounting

      Accounting's primary goal as an information system is to deliver valuable data to a diverse set of users, both external and internal. Financial statements, such as a profit and loss account and a balance sheet, offer essential information, especially ...
    • Meaning of Accounting

      "Proper accounting is like engineering. You need a margin of safety. Thank God we don't design bridges and airplanes the way we do accounting." Accounting was defined by the American Institute of Certified Public Accountants (AICPA) in 1941 as ‘the ...
    • Basic Terms in Accounting

      Entity Entity refers to a reality that has a distinct individual existence that can be identified. A business entity is a distinct and easily distinguishable commercial firm such as Super Bazaar, Hire Jewellers, ITC Limited, and so on. An accounting ...
    • Recent Articles

    • Basic Concepts of Income Tax in India

      Introduction Taxes are considered to be the ‘cost of living in a society’. Taxes are levied by the Governments to meet the common welfare expenditure of the society. The reason for levy of taxes of that they constitute the basic source of revenue to ...
    • Theory Base of Accounting

      The theory base of accounting consists of principles, concepts, rules, and guidelines that have been developed over time in order to bring uniformity and consistency to the accounting process as well as to increase the utility of accounting ...
    • All about DIR 3 KYC

      Introduction DIR 3 KYC is a Form which every individual holding DIN (Director Identification Number) has to file with Ministry of Corporate Affairs (MCA). Every individual who has been allotted DIN as on 31st March 2018, and the status of such DIN is ...
    • How does Digital Signature Work ?

      A Digital Signature Certificate explicitly associates the identity of an individual/device with a pair of electronic keys - public and private keys - and this association is endorsed by the CA. The certificate contains information about a user's ...
    • Usage of Digital Signature Certificate

      You can use Digital Signature Certificates for the following: For sending and receiving digitally signed and encrypted emails. For carrying out secure web-based transactions, or to identify other participants of web-based transactions. In eTendering, ...