Accounting Conventions: Meaning, Main Accounting Conventions
Key Points:
1. Meaning of
accounting conventions.
2. Convention of Conservation.
3. Full Disclosure Convention.
4. Convention of Materiality.
5. Convention of Consistency.
6. Convention of Observance
of Law.
7. Accounting Period Convention.
8. Convention of Accuracy.
9. Conclusion.
1. Meaning of
Accounting Convention –
Accountancy is based on
uses and Customs. Customs or uses is a practice which is in use since long. Naturally
accountants have to adopt that uses or customs. These are termed as convention
of accounting. Major conventions are used in preparation of final accounts also.
Accounting convention are
as follows –
(i) Convention of Conservation
–
It is also known as
unliberal, secured, old or static convention. under it, the accountant maintain
accounts keeping in mind all possible losses and ignores all possible profits
which may arise due to business activities.
(ii) Full Disclosure Convention
–
According to these
conventions, it is very necessary that the accountant should disclose all the
important facts and information. Final accounts should be prepared by honesty
and they should be complete and true. All important information are to be shown
clearly so that proprietor, management, creditors, employee’s banking company,
insurance company, government etc. maybe take decisions accordingly.
(iii) Convention of Materiality
–
Under this convention,
only important and useful events and facts should be shown in accounting whereas
useless and unimportant events should be avoided, so that financial decision
may not get affected.
(iv) Convention of Consistency
–
In any concern, each
year identical methods, system and policies of accounting should be followed and
changes should not be made occasionally. Whatever method of charging
depreciation, provision and reserve, writing of intangible assets etc. is
adopted it should not be changed in coming years. If changes are necessary.
(v) Convention of Observance
of Law –
It is necessary for the
accountant at the time of preparing final accounts that he should have
knowledge of various laws of trade such as Income Tax Act, GST, Companies Act,
Partnership Act, and Banking Regulation Act.
(vi) Accounting Period
Convention –
It is necessary to have
a fixed period of accounting for determining the trading results and financial
status. It is decided by keeping in mind the life of trade. Since, earth make a
round of sun in a year, so on that basis the period of accounting is one year,
but it can be less than a year also, depending upon the need of the business.
(vii) Convention of Accuracy
–
According to this
convention, all the information predicted in accounts should be based on truth
and honesty. It is said that truth is always lasting. Hence, it is expected
from accountant that he will not so wrong information in the accounts. All
information should be based on truth and honesty.
2. Conclusion:
Accounting work is not possible without accounting conventions. They work as guide at the time of preparation of accounting statements. They interpret accounting principles and provide practical to the concepts. Hence it can be concluded that accounting convention are the pillars, upon which the building of accounting principles stand.
