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Accounts Concepts and Conventions

Accounting concepts are fundamental ideas and assumptions that underlie accounting theory and practice. Some key concepts include money measurement, separate entity, going concern, cost, dual aspect, accounting period, objective evidence, realization, accrual, and matching. Concepts help identify transactions to record, convey consistent meaning to users, and promote uniform accounting practices. Accounting conventions are customs that guide accountants in preparing financial statements and include materiality, conservatism, consistency, and full disclosure. Conventions need not be followed uniformly while concepts are assumptions that all businesses must adopt.

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64 views21 pages

Accounts Concepts and Conventions

Accounting concepts are fundamental ideas and assumptions that underlie accounting theory and practice. Some key concepts include money measurement, separate entity, going concern, cost, dual aspect, accounting period, objective evidence, realization, accrual, and matching. Concepts help identify transactions to record, convey consistent meaning to users, and promote uniform accounting practices. Accounting conventions are customs that guide accountants in preparing financial statements and include materiality, conservatism, consistency, and full disclosure. Conventions need not be followed uniformly while concepts are assumptions that all businesses must adopt.

Uploaded by

karthik karthik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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concept

Concept means an idea or thought

Accounting concepts
are
fundamental ideas / basic assumptions underlying
the theory & practice of accounting
Developed over a period of time

in response to

changing business environment


benefits
Helps in identifying transactions
to be recorded

Helps in conveying same meaning to all end


users of accounting information

Helps in bringing about uniformity in accounting


practice
Accounting concepts
 Money measurement concept
 Separate entity concept
 Going concern concept
 Cost concept
 Dual aspect concept
 Accounting period concept
 Objective evidence concept
 Realisation concept
 Accrual concept
 Matching concept
Money measurement concept
Or
common denominator concept

Only monetary transactions are to be recorded


Separate entity concept

Business and entrepreneur

has separate identity

in the eyes of law


Going concern concept
 Business is regarded to continue for a long
time

 That is why we have concepts of fixed assets


 ( considering it at C.P), depreciation, taking
loans from outsiders
Cost concept

 F.Assets  recorded at cost price (less)


depreciation

 C.Assets  recorded at cost price/ market


price (whichever is less)
Dual aspect concept

There are 2 aspects for each transaction

Every debit has a corresponding credit


Accounting period concept
 Is the accounting year

 It may be the calendar year

Or

 Generally from 1st April to 31st March


Objective evidence concept
All accounting entries

should be supported

by source documents

like invoices / vouchers


Realisation concept

Revenue considered realized


Only when
Goods/ services are transferred to customer
And customer becomes legally liable
to pay for them
Accrual concept

 Revenue accrues in that year in which they


are earned (whether received or not)

 expenses accrues in that year in which they


are incurred (not in the year actually paid)
Matching concept

 For calculating profit

 Revenue and expense is matched

 Net profit  revenue > expense


 Net loss  expense > revenue
Accounting conventions

Customs/ practices which have been in


force for a long time
which guide
accountants to prepare financial
statements
Accounting conventions
 convention of materiality

 convention of conservatism

 convention of consistency

 convention of full disclosure


convention of materiality

Detailed record

made of only those transactions

which are material / significant

to users of accounting information


e.g. small piece of stationary
convention of conservatism
 Policy of playing safe

 Provide for all possible/ prospective losses,


risks

 Anticipate no profits/ prospective profits to be


ignored
convention of consistency

Accounting practices/ methods

should remain consistent

from one accounting year to another

e.g. method of recording depreciation


convention of full disclosure

Material facts

must be disclosed in financial statements

with sufficient details


Concepts Conventions

Assumptions based on Customs/ usages/ tradition


which business based
transactions are recorded
every business must adopt Need not follow same
same concepts conventions

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