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Accounting Concepts & Conventions.

Accounting convention & concept - The difference between accounting concept and convention are presented in the points given below: Accounting concept is defined as the accounting assumptions which the accountant of a business concern follows while recording business transactions and preparing final accounts.

Whereas accounting conventions are procedures or practices which have universal acceptance. It is followed by the business concern & accountant while recording transactions and preparation of financial statement.

Types of Concept & conventions.

        Types of concept – In simple term it can remember as “MBAGCRD”

  • i) Money measurement concept – this concept business concern are recorded only monetary terms in the books of accounts. Non-monetary transactions are completely excluded.

  • ii) Business entity concept –In this concept the business is separate from its owner for the purpose of accounting.

  • iii) Accounting period concept –In simple term the concept refers to accounting activity should be presented for a particular period or year (say calendar year or financial year).

  • iv) GOING CONCERN CONCEPT –It refers to that once the business started it should be running for long period, so accordingly each & every procedure should be followed.

  • v) COST CONCEPT - This concept represent that all the assets of the enterprise are recorded in the accounts at their purchase price including tax & transportation cost.

  • vi) REVENUE CONCEPT –It state that revenue is to be recognized when they become receivable, while expenses should be recognized when they become due for payment.

  • vii) DUAL ASPECT CONCEPT - It is the primary rule of accounting, which states that every transaction effects two accounts. when one party maintains one things, naturally other party maintain opposite things.

        Types of conventions:

  • i) i) Full disclosure –The convention states that the business concern are fully informed of facts & figures which is necessary for the proper interpretation of the statement.

  • ii) Consistency – The convention states that once an entity has decided on one method, it should be use in the same method for all subsequent events of the same character unless it has a sound reason to change methods.
  • e.g- Fixed assets are recorded at their actual cost.

  • iii) Materiality - The term materiality refers to the relative importance of an item or an event. An item is "material" if knowledge of the item might reasonably influence the decisions of users of financial statements. Accountants must be sure that all material items are properly reported in the financial statement.

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