Accounting conventions, Accounting Basics

Accounting conventions

The phrase 'convention' is used to signify customs or ethnicity as a guide to the research of accounting statements. A variety of accounting conventions are in this way.

  • Convention of disclosure: This principle implies that accounts have to be honestly organized and all material information must be released therein. The term 'disclosure' implies that there is to be a enough disclosure of information which is of material interest to proprietors current and potential creditors and investors. This thought also be relevant to events occurring after the balance sheet date and the date on which the financial statements are authorized for issue, which are possible to have a significant influence on the earnings and financial position of the enterprise. Their non-disclosure would influence the capability of the users of such statements to make correct valuations and decisions.
  • Convention of materiality: As per this principle, financial statements should release all items which are material sufficient to achieve evaluations or decisions. The American Accounting Association (AAA) definite the context of "materiality" as "an item should be viewed as material if there is cause to believe that knowledge of it would manipulate the decision of informed investor". Unimportant items can be either left out or merged with other items. Occasionally, items are exposed as footnotes or in parentheses according to their relative significance.
  • Convention of consistency: reliability, as used in accounting, way that persistent application of the similar accounting events or method by a given firm from one time era to the next so that the financial statements of dissimilar periods can be compared significantly. This convention thus imply that in order to allow the management to draw significant and meaningful conclusions of concert over a period or between dissimilar firms, accounting practices should remain unaffected for a fairly long time.
  • Convention of conservatism: According to this convention, the accountant should be traditional in his/her approach belief and selection of process. In accounting, conservatism refers to the early acknowledgment of unfavorable events. For illustration, all achievable and expected losses must be offered for. But, alternatively, gains and other financial benefits should not be offered for if not they are relised. Alternatively, 'anticipate no profit and give for all possible losses'.
Posted Date: 10/15/2012 5:16:55 AM | Location : United States

Related Discussions:- Accounting conventions, Assignment Help, Ask Question on Accounting conventions, Get Answer, Expert's Help, Accounting conventions Discussions

Write discussion on Accounting conventions
Your posts are moderated
Related Questions
Explain about the Petty Cash Petty Cash It is a small amount of money which is kept in the office for making small expenditures. ($10, $25, $50, etc.) Business will conclude

Q. Explain about Conservatism? Conservatism The Conservatism means being prudent or cautious and making sure that assets and net income are not overstated. Such overstatements

Q. Explain about Accounting transaction? An accounting transaction is a business event or activity that causes a measurable change in the accounting equation Assets = Liabiliti

Fund flow deals with transaction within financial year (One year) while Cash flow Statement record only the cash transaction.

Q. Learning objectives of inventory turnover ratio? - Net income for an accounting period depends straight on the valuation of ending inventory. - If the ending inventory is

Accrual Concept The accrual concept makes a distinction among the receipt of cash, and the right to obtain it, and the payment of cash and the legal obligation for pay it. In

Determine the specific citation for accounting for each of the following items: 1. Accounts receivables from related parties should be shown separately from trade receivables. 2. T

A Customer Master Record is a permanent record that haves key information about a business partner or a material. This information must be entered into the system before any transa

The company borrowed 30 000on September 1, 2011. The principal is due to be repaid in 10 years. Interest is payable twice a year on each August 31 and February 28 at an annual rate