A Detailed Report on Accounting Concepts and Conventions in Finance

This report provides an overview of accounting concepts and conventions used in financial reporting. It defines accounting as the process of recording financial transactions and highlights the importance of financial statements in summarizing a company's operations, financial position, and cash flow. The report discusses key accounting concepts and five main accounting conventions: consistency, full disclosure, materiality, conservatism, and cost-benefit. Each convention is explained in detail, emphasizing its role in maintaining uniformity, transparency, and prudence in financial reporting. The report concludes that these conventions are essential for accountants in balancing financial information and ensuring reliable financial statements. Access solved assignments and study resources on Desklib.

INTRODUCTION TO ACCOUNTING
INTRODUCTION
 Accounting is the process of recording financial
transactions pertaining to business. Financial statement
used in accounting are a concise summary of financial
transaction over an accounting period, summarizing a
company operation, financial position and cash flow.
 The present report will discuss on accounting concept and
five conventions used in accounting.
 The term accounting concept refer to basic rules,
assumptions and principles which act as a primary
standard for recording business transactions and
maintaining books of accounts.
 Moreover, the main objectives of accounting are to
maintain uniformity and regularity in the preparation of
accounting statements (Tang, 2019).
ACCOUNTING CONVENTIONS
 This is known as certain restrictions for the business
transaction that are complicated and are unclear. It is not
legally binding and generally accepted principles
maintain consistency in financial statements.
 While standardized financial reporting processes the
accounting convention consider comparison, full
disclosure of transaction, relevance and application in the
financial statements.
 It is basically known as accounting practice and
procedure that are commonly used in the preparation of
financial statements (Divyashree, 2019).
 Additionally, it is used to prepare financial statements
properly. It also helps accountant to have better
understanding about financial information as well as
resolving the issues arising out of it.
 Consistency: It allows accountant to use accounting procedures
or practices in a way that enables compatibility in the accounting
formation form one period to another.
 Full- disclosure:
 It provides transparency that the company provides in their
financial statements so that it does not mislead the user. Along
with this, this convention requires the organization to disclose all
the information that is relevant to the user understanding of the
financial statements.
 Materiality:
 It means the matter that is important in accounting principle. In
this case, a matter is important if it can influence the economic
decision making of the users of financial statements.
 Conservatism:
 It refers to being prudential when dealing with uncertainty and
estimate. It is a principle that requires accountants to be cautious
when preparing financial statements.
 Cost benefits:
 It refers to the accounting practice that weights the benefits
against the cost of providing accounting information. In this
accounting convention the information should only be provided if
the benefit outweighs the cost (Tang, 2019).
CONCLUSION REFERENCES
 From the above report it has been concluded that are
various accounting convention that is used by accountant
that helps in maintaining the balance as well as
information.
 Tang, V. W., 2019. The role of accounting and the debate
between historical cost and fair value. Accounting, Economics,
and Law: A Convivium.9(1).
 Prasad, K. D., Mubeen, S.A. and Rajani, B., 2020. Accounting
disclosure practices–an over view. Journal of Finance and
Accounting. 8(4). pp.208-211.
FIVE MAIN ACCOUNTING CONVENTION

INTRODUCTION
Accounting is the process of recording financial transactions pertaining to business.
Financial statement used in accounting are a concise summary of financial transaction over an
accounting period, summarizing a company operations, financial position and cash flow.
The present report will discuss on accounting concept and five conventions used in accounting.
MAIN BODY
MEANING
The term accounting concept refer to basic rules, assumptions and principles which act as a
primary standard for recording business transactions and maintaining books of accounts.
Moreover, the main objectives of accounting is to maintain uniformity and regularity in the
preparation of accounting statements (Tang, 2019). The concept also helps accountants in
preparing and maintaining of business records. In addition to this, it also aims at understanding
business rules and regulation that are required to be followed by all types of business entities
and simplify financial information.
Accounting conventions
This is known as certain restrictions for the business transaction that are complicated and are
unclear. It is not legally binding and generally accepted principles maintain consistency in
financial statements. While standardized financial reporting processes the accounting
convention consider comparison, full disclosure of transaction, relevance and application in the
financial statements. It is basically known as accounting practice and procedure that are
commonly used in the preparation of financial statements (Divyashree, 2019). Additionally, it is
used to prepare financial statements properly. It also helps accountant to have better
understanding about financial information as well as resolving the issues arising out of it.
Five Main Accounting convention
Consistency: It allows accountant to use accounting procedures or practices in a way that
enables compatibility in the accounting formation form one period to another. Along with this,
it also allows user to compare the financial information as well as enhance comparability of
information. Although, if there is any inconsistency from one period to another due to the
change of the accounting procedure the organization needs to disclosed it in the note to
financial statements that clearly explain why the change is made. Moreover, according to
consistency if company has selected on accounting principle by the business while recording
then it should follow that consistently for years (Jayasekara, Perera and Ajward, 2019). Along
with this, this principle is helpful for investors and analysts to read, understand and compare
the financial r statements of the company. However, if organization wants to make change in
the method then it should do so only with proper reason to make particular change. Along with
this, there are certain points that criticize this principle such as it consider some items at cost
basis while other at market value that void the principle of consistency. Thus, accounting

convention considers consistency in reporting methods over the years and not consistency with
line items in comparison.
Full- disclosure:
It provides transparency that the company provides in their financial statements so that it do
not mislead the user. Along with this, this convention requires the organization to disclose all
the information that is relevant to the user understanding of the financial statements. Thus,
there is note to financial statements in which it discloses a lot of important information
including accounting procedure used in preparing the financial statements, changes in
accounting procedure and significant events arising after the balance sheet date (Barnett and
Su, 2020). Additionally, relevant information regarding the financial status of the company must
be revealed in the financial statements even after the application of accounting convention. For
instant: Law suits against a business should be reported in the notes of financial statements of
the company.
Materiality:
It means the matter that is important in accounting principle. In this case, a matter is important
if it can influence the economic decision making of the users of financial statements. It is
usually determined by the dollar value relating to an item in the financial statements. This
concept includes the impact of event or item and its relevance in financial statements. The
report must includes events and items that might influence the decision of investors or
analyst. It means materiality allows an accountant to ignore certain principles when items are
not material. For Instance, low cost assets like stationery, cleaning supplies are charged under
expenses account instead of regular depreciating assets.
Conservatism:
It refers to being prudential when dealing with uncertainty and estimate. It is a principle that
requires accountants to be cautious when preparing financial statements. Along with this,
conservation convention is an approach that assumes the worst case scenario in which assets
and revenues tend to be understated while liabilities and expenses tend to be overstated.
Moreover, this approach net income should never be overestimated and provisioning for losses
should always be made (Prasad, Mubeen and Rajani, 2020). Along with this, when
organization needs to choose between two reasonable solution in accounting procedures or
estimate. Firm should at least likely to result in an overstatement of assess or net income.
Cost benefits:
It refers to the accounting practice that weights the benefits against the cost of providing
accounting information. In this accounting convention the information should only be provided
if the benefit out weighs the cost (Tang, 2019). However, the organization should always
maintain the minimum acceptable level of relevance and reliability which is required by
applicable accounting standards such as GAAP and IFRS.

CONCLUSION
From the above report it has been concluded that are various accounting convention that is
used by accountant that helps in maintaining the balance as well as information.

REFERENCES
Books and journals
Tang, V. W., 2019. The role of accounting and the debate between historical cost and fair
value. Accounting, Economics, and Law: A Convivium.9(1).
Prasad, K. D., Mubeen, S.A. and Rajani, B., 2020. Accounting disclosure practices–an over
view. Journal of Finance and Accounting. 8(4). pp.208-211.
Barnett, W. A. and Su, L., 2020. Financial Firm Production of Inside Monetary and Credit Card
Services: An Aggregation Theoretic Approach. Macroeconomic Dynamics. 24(1). pp.130-160.
Jayasekara, S. S., Perera, K. W. and Ajward, A. R., 2018. Fair Value Accounting Practices and
Financial Performance of Commercial Banking Industry. World.8(3). pp.122-137.
Divyashree, M. S., 2019. International Financial Reporting Standards-A Tool for Harmonising
the Financial Reporting. International Journal of Financial Management. 9(2).
Online references
A, B., 2018. [Online]. Available through <>