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Accounting Concepts & Conventions

Accounting concepts are fundamental assumptions that guide how business transactions are recorded and financial statements are prepared. The key concepts include: the business entity concept which treats a business as separate from its owners; the money measurement concept which only records transactions with monetary values; and the going concern concept which assumes a business will continue indefinitely. Accounting conventions like consistency, disclosure, conservatism and materiality are practices that help accountants prepare financial statements and allow statements to be compared over time.

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420 views2 pages

Accounting Concepts & Conventions

Accounting concepts are fundamental assumptions that guide how business transactions are recorded and financial statements are prepared. The key concepts include: the business entity concept which treats a business as separate from its owners; the money measurement concept which only records transactions with monetary values; and the going concern concept which assumes a business will continue indefinitely. Accounting conventions like consistency, disclosure, conservatism and materiality are practices that help accountants prepare financial statements and allow statements to be compared over time.

Uploaded by

Kartik K
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Accounting concepts are the fundamental accounting assumptions that act

as a foundation for recording business transactions and preparation of final


accounts.Every financial transaction that occurs is interpreted taking into
consideration the accounting concepts, which guides the accounting methods.
The following are the accounting concepts :

1. Business Entity Concept: The concept assumes that the business


enterprise is independent of its owners.
2. Money Measurement Concept: As per this concept, only those
transaction which can be expressed in monetary terms are recorded in
the books of accounts.
3. Cost concept: This concept holds that all the assets of the enterprise are
recorded in the accounts at their purchase price
4. Going Concern Concept: The concept assumes that the business will
have a perpetual succession, i.e. it will continue its operations for an
indefinite period.
5. Dual Aspect Concept: It is the primary rule of accounting, which
states that every transaction effects two accounts.
6. Realisation Concept: As per this concept, revenue should be recorded
by the firm only when it is realized.
7. Accrual Concept: The concept states that revenue is to be recognized
when they become receivable, while expenses should be recognized
when they become due for payment.
8. Periodicity Concept: The concept says that financial statement
should be prepared for every period, i.e. at the end of the financial year.
9. Matching Concept: The concept holds that, the revenue for the
period, should match the expenses.

Definition of Accounting Convention

Accounting Conventions, as the name suggest are the practice adopted by an


enterprise over a period of time, that rely on the general agreement between
the accounting bodies and helps in assisting the accountant at the time of
preparation of financial statement of the company.

For the purpose of improving quality of financial information, the accountancy


bodies of the world may modify or change any accounting convention. Given
below are the basic accounting conventions:

 Consistency: Financial statements can be compared only when the


accounting policies are followed consistently by the firm over the period.
However, changes can be made only in special circumstances.
 Disclosure: This principle state that the financial statement should be
prepared in such a way that it fairly discloses all the material
information to the users, so as to help them in taking a rational decision.
 Conservatism: This convention states that the firm should not
anticipate incomes and gains, but provide for all expenses and losses.
 Materiality: This concept is an exception to the full disclosure
convention which states that only those items to be disclosed in the
financial statement which has a significant economic effect.

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