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
Exercise 5-2 - Harwick company. 1) On April 5, purchased merchandise from Botham Company for $23,000, terms 2/10, net/30, FOB shipping point. 2)On April 6, paid freight costs of $


How to do a trial Balance                     Particulars                            Amount Dr.                       Amount Cr. In

Obtain the relevant authoritative literature on accounting for accounts receivable using the FASB's Codification Research System at the FASB website. What is the specific citation

Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company's current accou

As part of their divorce agreement , Harry transfers to Mary, his former spouse, GM stock with a market value of 30000, Harry had $20000 invested in the stock. How does this transf

Cash Flow Statement Vs Funds Flow Statement:   together the Cash Flow Statement and Funds Flow Statement give approximately comparable picture of the firm. They don't be different

Can a copy constructor accept an object of similar class as parameter, in place of reference of the object?

How to create account for barter transactions? As My Company is providing a service to another company and that company is reimbursing us with his service.

Liz Marett is the chief financial officer for Fulton Restaurants. She delivered the following comments in a recent conference call with analysts that follow the company: "20X5