Accounting concepts and conventions refers to the traditions, which are used as a guide in the preparation of meaningful financial records in the form of financial statements. This concept provides in accounting a systematic visible shape to business transactions in the desired form. To make the accounting information useful to various interested parties, the basic assumptions are followed by the accountant in accounting process.
Accounting includes identify, records, classifies, summaries and analysis all the financial transactions taking place in a business and interpret the financial information to interested users by way of communication the results of the business firm.
Secrets about Accounting Concepts
- Accounting concepts are used by the internal and external users who are in need of the data. The statements are prepared by the accountants and it is understood by the users in the same manner. Many business firms if follows their own concepts, assumptions and principles in preparing and compiling and finalizing the accounts, uniformity will be absent and comparative analysis are not possible with the entity. When the Uniform accounting practices are not followed then the meaning of interpretation is also not uniform for all users of financial statements.
- Different concepts, conventions and assumptions were developed in past years which is acts as the basis for foundation on which financial accounting practice are founded as in the accounting process.
- The conventions were evolved in the accounting process from general experience of accountants, historical precedents, regulation of regime party and statements from professional bodies like chartered accountants in different countries, public organizations in accounting process. Professional bodies have identifying and evolved, modified the different accounting concept, principles and practice of accounting in the form as generally acceptable accounting practice. These concepts, principles provide uniformity in preparation of accounts. They are the general guidelines to sound accounting practices. It facilitates the understanding of financial statements by the interested users or end users.
Accounting concepts with examples
The principles are important, the reasons are because the concepts and principles satisfies the basic criteria-
1. Relevance – These principles are more valuable in providing useful, necessary and relevant financial information to the various interested users.
2. Objectivity – the principles are supported and supplemented by the real facts documents, and other acceptable evidence for recording financial transaction in account books.
3. Feasibility – the accounting principles are practicable with use since they can be applied without excessive costs and efforts.
All the principles and assumptions are followed consistently and it should be disclosed and interpreted in the accounting statements for users.
Accounting concept with examples are important for finalizing accounts. It can classified on the basis of aspects of accounting for which they are useful.
Accounting principles are developed for practical purpose. The needs are common usage to ensure uniformity and understanding for all interested parties.
Accounting conventions are established tradition; customs, methods and practices which are normally act as guidelines for preparation and presentation of accounts.
Originally posted 2013-10-23 07:33:12.