Accounting Concept vs. Accounting Convention: Difference and Comparison
Accounting concepts are foundational theories guiding financial recording, while accounting conventions are customary practices followed by accountants to ensure consistency and comparability.
Difference Between Accounting Concept and Accounting Convention
Accounting concepts and accounting conventions, both integral to the world of finance, serve different functions. Accounting concepts refer to the basic theories and principles that underlie the art and science of accounting. These concepts act as the foundation upon which the complete structure of accounting is built. For instance, the accrual concept dictates that transactions are recorded when they occur, not when cash changes hands. Accounting conventions, on the other hand, are practices or methodologies that have become standard over time due to their widespread acceptance.
It's imperative to recognize that while accounting concepts are foundational, accounting conventions evolve over time. Concepts like the going concern concept assume that a business will continue its operations for the foreseeable future. In contrast, conventions might involve methods for depreciating assets or writing off bad debts, which can vary across organizations but still stay within accepted boundaries.
From a compliance standpoint, accounting concepts are more rigid as they form the bedrock of financial accounting and are often enshrined in accounting standards. Adhering to these concepts ensures that financial statements reflect the true and fair view of an organization's financial health. Accounting conventions, conversely, provide flexibility. They allow accountants to use their judgment and discretion, ensuring that financial statements are not only compliant but also meaningful to users.
In conclusion, both accounting concepts and accounting conventions play pivotal roles in the realm of accounting. While concepts provide the theoretical framework that ensures the integrity and reliability of financial statements, conventions offer the practical tools accountants need to interpret, adapt, and present financial information effectively.
Accounting Concept vs. Accounting Convention Comparison Chart
Fundamental theories of accounting
Customary practices followed for consistency
Rigid, as they are basic principles
Flexible, based on widespread acceptance
Rooted in accounting theories
Developed over time due to tradition
Ensure integrity of financial recording
Ensure comparability across financial statements
Accrual concept, going concern concept
Methods of depreciation, writing off bad debts
Accounting Concept vs. Accounting Convention Definitions
Ground rules of accounting.
The consistency accounting concept ensures similar treatment of similar items.
Established practices followed for uniformity in accounting.
The straight-line method, an accounting convention, is popular for asset depreciation.
Fundamental beliefs underpinning financial reporting.
Accrual accounting concept is integral for revenue recognition.
Practices that evolved from accountant consensus.
Materiality is an accounting convention allowing minor discrepancies to be disregarded.
The backbone of financial record-keeping.
The realization accounting concept determines when revenue is recognized.
Generally accepted financial reporting norms.
The consistency convention mandates that businesses use the same accounting methods over time.
Theoretical principles governing accounting practices.
The going concern is a fundamental accounting concept.
Traditionally accepted methodologies in finance.
Writing off doubtful debts is a common accounting convention.
Guiding pillars for accountants.
The matching accounting concept dictates matching revenues with expenses.
Customary methods ensuring consistent financial reporting.
The accounting convention of prudence ensures underestimation of income and overestimation of losses.
Accounting Concept vs. Accounting Convention Frequently Asked Questions
What underpins the entire structure of accounting?
Which ensures that financial statements reflect a true and fair view?
Are accounting conventions more flexible than accounting concepts?
Yes, accounting conventions provide flexibility based on tradition.
What allows for the use of judgment in financial reporting?
Is the going concern an accounting concept or convention?
Why are accounting conventions important for financial statements?
They ensure consistency and comparability.
Do accounting conventions change over time?
Yes, they evolve based on customary practices.
How do accounting concepts and conventions relate to each other?
Accounting concepts provide the foundational theories, while conventions offer practical tools for interpretation and presentation.
Which provides the theoretical framework for financial accounting?
Which might determine the method of depreciating an asset?
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