CA Foundation Notes: Principle and Practice of Accounting

CA Foundation: Principle and Practice of Accounting 

The principles and practice of accounting cover ten chapters, in which each chapter describes a special aspect of accounting. The initial chapters focus on the bookkeeping aspect of accounting, while some chapters tell about the financial statements of sole proprietors. Complete study material is also available on our website. In this article of catestseries.org, you will learn about the theoretical framework, which covers a total of nine units described in detail below.

Chapter 1: Theoretical Framework

The theoretical framework is the first chapter of the CA Foundation principles and practice of the accounting subject. This chapter begins with fundamental terms and concepts of financial statements that are explained briefly in the form of units, containing a total of nine units in one chapter. Students can also prepare for the important questions that help them prepare for the January 2026 CA Foundation exams. Students can prepare themselves by following effective tips related to the CA Foundation exam that are essential for each CA student preparing for the CA exams.

Unit 1: Meaning and Scope of Accounting 

Accounting is a process that helps to record, summarise, and analyse the data that concerns financial transactions. The first function of accounting is to record data from the different transactions. There are three ways to record data: 

• Putting up a system that will help you maintain the record. 
• Tracking financial transactions. 
• Aggregating the report to present a final set of financial reports. 

However, the raw data is not significant to the organisation, so the accountant divides it into several categories, and the transcription recording is then summarised. At the end, the owner receives an annual report that summarises all of their performance. After recording the summary, conclude so that management can check the positive and negative points. To analyse all these, compare profits, sales, and equity to one another. The fundamentals of accounting are-

ALOE

• A = Asset 
• L = Liabilities
• OE = Owner Equity

1. Asset = An asset is the item that belongs to you, like a car or house. 
2. Liabilities are whatever you own that is a liability, but not an asset. 
3. Owner equity is the total amount of investment that an organisation invests in.

 Scope of Accounting 

• Selling and distribution costs.
• All expenses.
• Administration overhead, such as power rent, salaries of company officials, etc.
• Plan for future growth. 
• Prepare a budget for the future. 
• Current profit. 
• To forecast the income statement. 

Here we have discussed the meaning and scope of accounting, with an emphasis on recording, summarising, and interpreting the relevant data. The next unit is unit-2, namely accounting concepts, principles, and conventions, explained in detail below.

Unit 2: Accounting Concepts, Principles and Conventions

The money measurement concept: In this business record, only those transactions can be expressed in monetary terms, like the purchase and sale of goods. 

1. Going Concern Concept: It means that the business will continue to operate for an indefinite period and will not liquidate in the future. 
2. Consistency: This means that an organization should be consistent in its accounting practices and policies. It means that accounting information provided by an organization would be beneficial only when it allows its users to make comparisons between the statements of different years.
3. Matching: It means that an organisation should recognise its expenses in the same financial year. 
4. Full disclosure: It means that an organisation should have to disclose all its facts regarding its financial performance. 
5. Revenue Recognition: It is suggested that an organisation record its revenue from business.
6. Materiality: It is about an organisation only having to focus on material facts
7.  Objectivity: It is about the fact that an organisation should objectively record transactions.
8. Accounting Period: It defines the time during which an organisation prepares its financial statements, whether they have earned profit or loss. 
9. Dual Aspect: It means two accounts will be affected by a single account. 
10. Cost Concept: It means that an organisation should record all its assets and their purchase price in the book of accounts.
11. Business Entity: It means that the business and its owner are treated separately. 
12. Conservatism Concept: This organisation should adopt a conscious approach and should not record its profit until it realises it.

The accounting terminology is the third unit in the CA Foundation chapter one, describing accounting terms and concepts related to income, etc. 

Unit 3 Accounting Terminology-Glossary

Accounting terminology is the language of accounting that describes accounting concepts and terms such as income, expenses, liabilities, etc. A glossary is a book of accounts that provides definitions for complicated words.

1. Accounting: Recording and reporting of financial transactions. 
2. Account Payable: Account owned by the creditor.
3. Account Received: Claim against the debtor. 
4. Accountant: Personal skills.
5. Asset: An economic resource. 
6. Bank Statement: A periodic statement. 
7. Budget: Financial plan. 
8. Cash: An Asset account of a balance sheet. 
9. Cash Basis: Method of bookkeeping. 
10. Credit: Entry on the right side of the bookkeeping system. 
11. Debit: Entry on the left side of the bookkeeping system. 
12. Deficit: Financial storage.
13. Equity: Residual interest. 
14. Expense: Something spent on a specific item. 
15. Finance: The science of management. 
16. Fund Accounting: A method of accounting. 
17. Goodwill: Premium paid in the acquisition of an entity over the fair value. 
18. Liability: Debts owed by an entity. 
19. Matching Principles: A fundamental concept of basic accounting. 
20. Net Asset: Excess of the value of the security owned. 
21. Net income: Excess of total revenue. 
22. Profit: Positive difference in selling goods. 
23. Receivable: The amount of money due from the customer. 

 In unit 3, there is a glossary given to define specific terms in an easy-to-understand way so that students can learn the meaning of each term. Students can learn these terms in detail by visiting the ICAI CA Foundation Accounting terminology glossary.

Unit 4: Capital and Revenue Expenditures and Receipts

The primary function of accounting includes profit and loss; at the end of the period, the distinction between capital and revenue is essential for the income statement as well as the balance sheet. They can be divided into two parts:

1. Capital and Revenue Expenditures

2. Capital and Revenue Receipts

1.1 The Capital Expenditure—Expenditure that acquires capital. An asset is a capital expenditure; it is used only for business, not for sale.

 1.2 The Revenue Expenditure—When the expenditure is made not for business and working with the view of profit, it is revenue expenditure. 

1.3 The Deferred Expenditure—It is a revenue expenditure by nature and cannot be treated as a revenue expenditure, and its benefits are not fully exhausted in the accounting period. 

2. The Capital and Revenue Receipts

The capital and revenue receipts are essential because they are taken to the balance sheet, and revenue receipts are brought to the trading and profit and loss accounts.

 Unit 5 Contingent Assets and Contingent Liabilities

The contingent asset—they recognise the amount of cash generated from the event and remove it from an account, providing the future cost of possible contingent liabilities. There are two categories of contingent assets:

• Asset with liability (debtors)
• Asset without liability (liabilities)

Asset with liability: In this, liabilities are attached to them, and they are recorded and disclosed in the balance sheet. 

Assets without liability: They are not allowed, but some specific exceptions can be applied.

The contingent liabilities: They are accountancy terms for obligations that arise from a contingency, such as a legal obligation that pays compensation for damage. 

Unit 6 Accounting Policies

Accounting policies are the rules and guidelines of the company that present and prepare its financial statements. Accounting policies can be wide-ranging, but all are included in the standards dictated; some of the key policies of the company are given below:

• Valuation of Fixed Assets 
• Valuations of Investment.
• Treatment of Goodwill.  Recognise the profile of long-term contracts.
• Treatment of leases. 

Accounting policies can be changed if required by the accounting standard or by law, and they are also changed to improve the presentation of financial statements.

Unit 7 Accounting as a Measurement Discipline - Valuation Principles, Accounting Estimate

Measurement is a vital aspect of accounting; in this, transactions and events are measured in terms of money. The three elements of measurement are

1. Identification of object and event. 
2. Selection of the standard of scale to be used.
3. Evaluation of the dimension of the measurement standard or scale. 

The four generally accepted measurement bases, or valuation principles: 

1. Historical cost. 
2. Current cost.
3. Realizable value.
4. Present value. 

After studying this unit, students understand the meaning of measurement and its basic elements, as well as the differences between measurement and valuation, and learn about the bases of measurement.

Unit 8 Accounting Standards

Accounting standards are a set of practices and policies that are used to systematize bookkeeping and other accounting functions. It applies to the full breadth of an entity finances, liabilities, revenue, expenses, assets, and shareholder equity. 

Unit 9: Indian Accounting Standards

They are IFRS standards issued by the central government of India. These standards are essential for certain Indian companies. The objective of Indian accounting standards: 

1. International coverage.
2. Transparency and accountability
3. Uniformity and consistency
4. Investor protection
5. Facilitation of cross-border transactions
6. Reliability and credibility

Free Mock Test Papers for January 2026 exams 

Students can practice through mock test series, providing them exam-like patterns and types of questions to help them get ready for their upcoming CA Foundation exams for January 2026. 

Conclusion

In the chapter on the theoretical framework, it mainly covers the theoretical framework and an introduction to the accountancy subject. You will also check the whole syllabus of the CA. Foundation Principles and Practice of Accounting that helps you to get ready for your exams. It makes basic concepts and principles governing financial reporting. There are key elements like qualitative characteristics, measurement bases, and scope of accounting that make sure the financial reporting standard is met. Students can use free notes to better prepare for their exams.

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