Accounting Conventions

  • Accounting Conventions refer to customs or generally accepted practices which are adopted either by general agreement or by common consent among accountants.
  • Conventions may undergo change with time to improve the quality of accounting information.
  • As per convention of Going Concern, it is assumed, that the business firm would continue to carry out its operations indefinitely, i.e., for a fairly long period of time.On the basis of this assumption, fixed assets are valued at original cost less depreciation.
  • Convention of Consistency states that accounting procedures and methods should remain consistent from one year to another. If these are changed from year to year, net profits of different years will not be comparable. However, this concept does not prohibit change in accounting policies.
  • As per convention of Accrual, revenue is recognised when it is earned. It is immaterial whether the cash is received or not. This assumption applies equally to revenues and expenses. Accrual convention follows matching principle of accounting. There is consistency in computation of profits in different years.
  • Accounting concepts are established by law whereas accounting conventions are guidelines based upon custom or general agreement. Accounting concepts are uniformly adopted whereas accounting conventions are accepted by norms.

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