Accounting conventions can cover a range of issues including how to handle situations ethically, what measures to take when faced with specific issues, how to report and disclose specific sensitive information, etc. They are a body of doctrines commonly associated with the theory and procedure of accounting, serving as an explanation of current practices and as a guide for selection of conventions or procedures where alternatives exist. General ledger: A complete record of financial transactions over the life of a company. It should permit introduction of improved techniques of accounting. This is done to follow which of the following accounting principles: 1 Dual Aspect Principle 2 Materiality Principle 3 Timeliness Principle 4 Consistency Principle 5 Conservatism Principle 14 Rules of revenue recognition determine that earning process should be either complete or near completion under: 1 Realization Concept 2 Materiality Concept 3 Historical Record Concept 4 Accounting Period Concept 5 Dual Aspect Concept 15 The business transactions are recorded date wise to create proper record for all transactions. The issue of differing accounting principles is less of a concern in more mature markets. It encourages creation of secret reserves by making excess provision for depreciation, bad and doubtful debts etc.
Verifiable Objective Evidence Concept : According to this concept all accounting transactions should be evidenced and supported by objective documents. Accounting concepts and conventions are a set of standard methodologies, guidelines and procedures when preparing financial statements, thereby ensure that accounting information is prepared in a manner which is consistent, true, fair and accurate. Events or transaction which cannot be expressed in terms of money are not recorded in the books of accounts, even if they are very important or useful for the business. Those wishing to co-author next edition of this handout may also contact. Credit and debit: A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account.
The transactions between the proprietor and the business will be recorded separately in the books of business and shown separately under the heading 'Capital account'. Accountants all over the world agree on certain basic points on which financial accounting theory and practice are based, which are commonly referred to as 'accounting principles', 'postulates of accounting', 'accounting concepts', 'accounting conventions' and 'accounting standards'. A theoretical notion A method or procedure Set by Accounting bodies Common accounting practices Concerned with Maintenance of accounts Preparation of financial statement Biasness Not possible Possible Definition of Accounting Concept Accounting Concepts can be understood as the basic accounting assumption, which acts as a foundation for the preparation of financial statement of an enterprise. The concept says that the business will continue in operation long enough to charge the cost of fixed assets over the useful life time against the income from business. This is because if a transaction is recorded under double entry book keeping, the dual effect of transaction always results in matching concept.
Not following the consistency principle means that a business could continually jump between different accounting treatments of its transactions that makes its long-term financial results extremely difficult to discern. This may qualify as the most glaringly obvious of all accounting principles, but is intended to create a standard set of comparable periods, which is useful for trend analysis. These concepts provide an integrated structure and rational approach to the accounting process. Accounting conventions are a set of practices that are generally accepted and followed by accountants. The accounting standards have greatly amplified upon this concept in specifying an enormous number of informational disclosures.
These are the theories on how andwhy certain categories of transactionsshould be treated in a particularmanner. Accounting principles can be divided into two parts: Principle Concepts Conventions The term concept includes those basic assumptions, conditions and ideas upon which the science of accounting is based. These conventions are derived by usage and practice. Thus, it is easy enough to record the purchase of a fixed asset, since it was bought for a specific price, whereas the value of the quality control system of a business is not recorded. However, changes can be made only in special circumstances. Whether reliability of information may be compromised to ensure relevance of information is a matter of judgment that ought to be considered in the interest of the users of the financial information.
Accounting concepts are postulates, assumptions or conditions upon which accounting is based. There are a number of concepts that have been established as standard accounting principles. For the purpose of improving quality of financial information, the accountancy bodies of the world may modify or change any accounting convention. In this article you can find complete details for Accounting concepts — A comprehensive discussion like — Brief introduction for accounting concept, Meaning of Accounting concept, Details for Entity concept, Periodicity Concept, Money measurement concept, Accrual concept, Matching concept, Going concern concept, Cost concept, Realisation concept, Dual Aspect concept, Conservatism concept, Consistency concept, Materiality concept etc. It is entered on the right in an accounting entry. At the end of this period, they should be ready and submit to the parties concerned.
Accountant also adheres to various accounting standards issued by the regulatory authority for the standardization of accounting policies to be followed under specific circumstances. This introduces a conservative slant to the financial statements that may yield lower reported profits, since revenue and asset recognition may be delayed for some time. They are judged on the General Acceptability rather than Universal Acceptability to the user of financial statement hence they are called as General Accepted Accounting Principles G. An advance or fee paid is not considered a profit until the goods or services have been delivered to the buyer. Income profit earned by the business during a period can be measured only when the revenue earned during the period is compared with the expenditure incurred to earn that revenue. It is one of the fundamental accounting concepts. Accounting is associated with everybody who is interested to keep the accounts of finance or monetary transactions.
This is a cornerstone of the accrual basis of accounting. Conventions of Materiality: The accountant should attach importance to material details and ignore insignificant details. A change in Accounting policy can be made only when it is required by law , or for better presentation of accounts or change in Accounting standards. The amounts expressed in these statements are based on vouchers and accounting records. The information which are of material interest to. Similarly, if the proprietor withdraws Rs. Concepts are those basic assumptions and conditions, which form the basis upon which the accountancy has been laid.