Accounting concept and convention

These concepts provide a foundation for accounting process. No enterprise can prepare its financial statements without considering these concepts.

Accounting concept and convention

Accounting concepts — A comprehensive discussion. Accounting Concepts are the assumptions and conditions on the basis of which financial statements of an entity are prepared.

These are the concepts which are adopted by the organizations in preparation of financial statements to achieve uniformity in reporting. Accounting concepts are the base for formulation of accounting principles. Accounting concepts have universal application.

Entity concept assumes that business Enterprise is separate from its owners. Accounting transactions should be recorded with this concept only. The main intention of this concept is to keep the business transactions keep away from the influence of personal transactions of its owners.

DIFFERENCE B/W CONCEPTS & CONVENTIONS

As per going concern concept an entity is assumed to have indefinite life. Periodicity concept Accounting concept and convention a small but workable fraction of time period for measuring the business performance. Generally it assumes 1 year is taken for this purpose. As per this concept transactions which can be measured in monetary terms only are to be recorded in books of accounts.

Any transactions which can not be converted into monetary terms should not be recorded in books. As per this concept transactions should be recognized in the books of accounts only when they occur and not on any cash basis. The main advantage of this concept is that financial Statements prepared as per this concept inform the users not only about past events involving payment and receipt of cash but also about obligations to pay cash in the future and resources that represent cash to be received in the future.

As per this concept all the expenses which can be matched with the revenue of that period only should be taken into consideration for financial reporting. This concept is based on Accrual concept as it gives importance to occurrence of an expense which is spent for generating a revenue.

This concept leads to adjustments at the end like outstanding expenses, income and Prepaid expensesincomes.

Difference Between Accounting Concept and Convention (with Comparison Chart) - Key Differences

As per this concept financial statements are prepared on an assumption that enterprise will continue its operations for the foreseeable future. Thus, it says that enterprise has neither the intention nor the need to liquidate or curtail the scale of its operations.

Valuation of assets of a business entity is dependent on this assumption. This concept says that any change in value of an asset is to be recorded only when the business relaises it.

This concept highly prefers Realisation of the value for which we want to give effect in books of accounts. This concept is base for double entry Accounting. Under the system, aspects of transactions are classified into two main types: Credit Every transaction should have a Debit and credit.

Debit is the portion of transaction that accounts for the increase in assets and expenses, and the decrease in liabilities, equity and income. And credit is the portion which is a results of decreases the asset, increases the liability, income, gains, equity.

Accounting conventions are the generally accepted guidelines in preparation of financials. They arise from customs and practical application. They are not legally documented policies. Following r the accounting conventions 1 Conservatism:The primary difference between accounting concept and convention is that while accounting concept is a fundamental notion or idea, whereas accounting convention is the accounting practices which are to be followed by the enterprise, as they are widely accepted by accounting bodies.

Accounting concept and convention

Accounting Concepts and Conventions 1) A business firm is separate and distinct from its owners is the assumption under which of the following accounting concepts: 1) Business Entity 2) Going Concern Entity 3) Money Measuring Entity 4) Accounting Period concept 5) None of the above 2) Assumption of accounting entity or business entity concept is.

Accounting Concepts are the assumptions and conditions on the basis of which financial statements of an entity are prepared. These are the concepts which are adopted by the organizations in preparation of financial statements to achieve uniformity in reporting.

Accounting Concepts and Conventions 1) A business firm is separate and distinct from its owners is the assumption under which of the following accounting concepts: 1) Business Entity 2) Going Concern Entity 3) Money Measuring Entity 4) Accounting Period concept 5) None of the above 2) Assumption of accounting entity or business entity concept .

Accounting Concepts Basic Accounting 18 The main objective is to maintain uniformity and consistency in accounting records. These concepts constitute the very basis of accounting.

l It is the very basis of accounting concepts, conventions and principles. INTEXT QUESTIONS Fill in the blanks with suitable word/words (i) The accounting.

Definition of accounting concepts: Rules of accounting that should be followed in preparation of all accounts and financial statements. The four fundamental concepts are (1) Accruals concept: revenue and expenses are recorded when.

Accounting Concepts and Conventions - Finance Notes - MBA/BBA