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Accounting principles and practices are essential for maintaining consistency and clarity in financial records. These principles, known as accounting concepts and conventions, serve as the foundation for recording business transactions and preparing financial statements.
They provide a framework that ensures uniformity in accounting practices and facilitates better understanding of a company's financial position
Meaning of Accounting Concepts
Accounting concepts are the fundamental assumptions, rules, and principles guiding the recording of business transactions and the preparation of financial statements.
They aim to ensure consistency and uniformity in accounting records. These concepts have evolved over time and are universally accepted within the accounting profession.
Some key accounting concepts include:
Business entity concept
Money measurement concept
Going concern concept
Accounting period concept
Accounting cost concept
Dual aspect concept
Realization concept
Accrual concept
Matching concept
Meaning of Accounting Conventions
Accounting conventions are commonly followed practices in recording and presenting accounting information. They are akin to customs or traditions in society and have developed over time to ensure consistency in accounting practices.
Accounting conventions facilitate the comparison of financial data across different business entities and periods.
Key accounting conventions include:
Convention of consistency
Convention of full disclosure
Convention of materiality
Convention of conservatism
Differences Between Accounting Concepts and Conventions:
Aspect | Accounting Concepts | Accounting Conventions |
|---|---|---|
Nature | Fundamental ideas or theoretical principles | Established practices and guidelines |
Purpose | Provide a framework for understanding and applying accounting principles | Ensure consistency and comparability in financial reporting |
Binding Nature | Generally accepted and adhered to in the formulation of accounting standards and regulations | More flexible, can evolve over time with changes in business practices and regulatory requirements |
Scope | Broad principles that underpin the preparation and presentation of financial statements | Guidelines for practical application of accounting concepts to ensure uniformity |
Stay tuned for our next article, where we'll delve into the aforementioned accounting concepts and conventions in detail to learn accounting in great manner.
Read the next article to learn more about the Business entity concept.