📘 Class 11 Accountancy – Chapter 3:
Theory Base of Accounting, Accounting
Standards and Indian Accounting
Standards
🔹 1. Meaning of Accounting Principles
Accounting principles are the general rules and guidelines that accountants follow when
recording and reporting financial transactions. These principles ensure consistency,
reliability, and comparability of financial statements across different entities and over time.
Purpose:
● Brings uniformity in the preparation of financial statements.
● Ensures that accounting information is meaningful and useful to users like investors,
creditors, and regulators.
🔹 2. Types of Accounting Principles
A. Accounting Concepts (Assumptions)
These are fundamental ideas or assumptions that provide a foundation for accounting
practices.
Concept Explanation Example
Business Entity Business is treated as separate If the owner introduces
from its owner. Personal ₹1,00,000 into the business, it
transactions are not mixed with is recorded as Capital.
business transactions.
Money Only transactions that can be Quality of management or
Measurement measured in monetary terms are employee morale is not
recorded. recorded.
Going Concern Business is assumed to operate Assets are not shown at their
indefinitely unless there’s evidence liquidation value.
otherwise.
Accounting The life of the business is divided Profit is calculated for April 1 to
Period into fixed intervals (usually a year) March 31 each year.
to measure financial performance.
Cost Concept Assets are recorded at their A building purchased for ₹10
original cost, not market value. lakhs is recorded at that
amount, even if its current value
is ₹15 lakhs.
Dual Aspect Every transaction affects two Buying goods for cash affects
accounts. It is the basis of the inventory (increase) and cash
accounting equation: Assets = (decrease).
Liabilities + Capital.
Revenue Revenue is recognized when it is Goods sold on credit are
Recognition earned, not when cash is received. recognized as revenue even if
(Realisation) payment is not received
immediately.
Matching Expenses should be recorded in Salary of March paid in April is
Concept the same period as the revenues recorded in March.
they help to generate.
Accrual Concept Income and expenses are Rent outstanding at year-end is
recorded when they are incurred, recorded as expense, even if
not when cash is received or paid. unpaid.
B. Accounting Conventions
Conventions are customs or practices that guide how transactions are recorded and
presented.
Convention Explanation Example
Consistency Same accounting methods should Using straight-line method for
be applied year after year to ensure depreciation each year.
comparability.
Full Disclosure All material and relevant information Contingent liabilities are
must be disclosed in financial disclosed in footnotes.
statements.
Prudence Do not anticipate gains but provide Stock is valued at cost or
(Conservatism) for all possible losses. market price, whichever is
lower.
Materiality Only significant information is Small calculators purchased
recorded; insignificant items may be can be treated as an expense,
ignored. not an asset.
🔹 3. Accounting Standards (AS)
Accounting Standards are written policy documents issued by the Institute of Chartered
Accountants of India (ICAI) to standardize accounting policies and ensure consistency in
financial statements.
✅ Features:
● Applied in preparation and presentation of financial statements.
● Ensure transparency, reliability, and comparability.
● Legally enforceable for certain entities.
🔹 4. Objectives of Accounting Standards
1. To bring uniformity in accounting policies.
2. To improve reliability and credibility of financial statements.
3. To ensure better comparability between entities.
4. To help in investor decision-making by providing standardised information.
🔹 5. Need for Accounting Standards
● Prevents manipulation of accounts.
● Ensures true and fair view of financial position.
● Helps auditors, investors, regulators, and management to interpret data correctly.
🔹 6. Indian Accounting Standards (Ind AS)
Indian Accounting Standards (Ind AS) are standards notified by the Ministry of Corporate
Affairs (MCA) and are converged with International Financial Reporting Standards
(IFRS).
✅ Key Points:
● Applicable to listed and large companies in India.
● More detailed and globally recognized.
● Developed to improve comparability with global companies.
● Based on principles rather than rules.
🔹 7. Difference Between AS and Ind AS
Basis Accounting Standards (AS) Indian Accounting Standards (Ind
AS)
Developed By ICAI MCA (based on IFRS)
Framework Indian GAAP IFRS
Applicability Small, medium, and large Mainly for large and listed
businesses companies
Approach Rule-based Principle-based
Global Limited High
Acceptance
Disclosure Less detailed Extensive and elaborate
Fair Value Rarely used Widely used
Concept
🔹 8. IFRS (International Financial Reporting
Standards)
● Set by IASB (International Accounting Standards Board).
● Aim to make accounting uniform across the world.
● Adopted or converged by many countries, including India (via Ind AS).
● Ensure transparency, accountability, and efficiency in financial markets.
🔹 9. GAAP (Generally Accepted Accounting
Principles)
● A framework that includes accounting concepts, conventions, and rules.
● Helps in preparing financial statements.
● GAAP is country-specific:
○ India follows Indian GAAP (AS).
○ USA follows US GAAP.
○ IFRS is global GAAP.
✍️ Conclusion
Understanding the theory base of accounting is essential to apply correct principles, follow
standard norms, and ensure that the financial information presented is consistent,
comparable, and reliable.
