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Accounting Concept vs. Accounting Convention: What's the Difference?

Edited by Huma Saeed || By Sumera Saeed || Updated on October 6, 2023
Accounting Concept refers to the foundational ideas behind financial reporting, while Accounting Convention means established practices that guide accountants' actions.

Key Differences

Accounting Concept and Accounting Convention are two fundamental terms in the accounting domain. The Accounting Concept refers to the basic theoretical ideas and principles that form the backbone of accounting. These concepts act as the foundation upon which the entire structure of accounting is built. For example, concepts such as the money measurement concept or the going concern concept are essential for understanding why and how certain transactions are recorded.
Sumera Saeed
Oct 06, 2023
Accounting Convention, on the other hand, pertains to the customary and traditional practices which the accounting community adopts over time. While Accounting Concept offers the theoretical groundwork, Accounting Convention provides practical guidelines that help accountants in the real-world application of these concepts. These conventions have evolved based on convenience, usage, and to some extent, practical challenges.
Sumera Saeed
Oct 06, 2023
One could say that while the Accounting Concept is like the theoretical knowledge one gains from textbooks, the Accounting Convention is more like the wisdom one gains from practical experience. Both are indispensable to the profession. For instance, while an Accounting Concept may state that financial statements should reflect a true and fair view, the Accounting Convention might dictate specific ways or methods to achieve that, like the conventions of consistency or materiality.
Sumera Saeed
Oct 06, 2023
Another interesting difference is that while Accounting Concepts tend to be more stable and less prone to change, Accounting Conventions can evolve over time based on changing business environments, technological advances, and shifting regulatory landscapes. It is crucial to understand that both Accounting Concept and Accounting Convention work in tandem to ensure that accounting as a discipline remains both theoretically sound and practically relevant.
Harlon Moss
Oct 06, 2023

Comparison Chart

Nature

Theoretical principles
Practical guidelines
Sumera Saeed
Oct 06, 2023
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Stability

More stable and foundational
Can evolve over time
Sumera Saeed
Oct 06, 2023

Source of Evolution

Fundamental accounting principles
Based on tradition, practice, and experience
Sumera Saeed
Oct 06, 2023

Purpose

Provides the basis for financial recording
Ensures real-world applicability of concepts
Sumera Saeed
Oct 06, 2023

Example

Going concern concept (assumption that business will continue)
Convention of conservatism (understate income, overstate cost)
Sara Rehman
Oct 06, 2023

Accounting Concept and Accounting Convention Definitions

Accounting Concept

The basic theoretical ideas underpinning financial reporting.
The accrual Accounting Concept ensures revenues and expenses are recorded when they are earned or incurred, not when cash is exchanged.
Huma Saeed
Oct 06, 2023
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Accounting Convention

Established traditions adopted by the accounting community.
The Accounting Convention of consistency ensures that financial statements across periods can be compared with ease.
Huma Saeed
Oct 06, 2023

Accounting Concept

The foundation on which accounting practices and procedures are built.
Due to the going concern Accounting Concept, businesses assume they will continue operations indefinitely.
Sara Rehman
Oct 06, 2023

Accounting Convention

The practices and procedures that evolve based on practical challenges and needs.
The Accounting Convention of full disclosure ensures that companies present a comprehensive picture of their financial health.
Sumera Saeed
Oct 06, 2023

Accounting Concept

An underlying notion guiding the preparation and presentation of financial statements.
The materiality Accounting Concept dictates that all significant information should be reported in financial statements.
Sumera Saeed
Oct 06, 2023

Accounting Convention

Accepted norms ensuring the real-world applicability of accounting concepts.
The disclosure Accounting Convention mandates the sharing of all essential information in the financial statements.
Janet White
Oct 06, 2023

Accounting Concept

Rules that dictate the framework for financial accounting.
The consistency Accounting Concept implies that the same accounting methods should be used from one period to the next.
Sumera Saeed
Oct 06, 2023

Accounting Convention

Customary practices guiding the application of accounting principles.
Due to the Accounting Convention of materiality, minor expenses might be ignored if they don’t significantly impact the financial statements.
Sumera Saeed
Oct 06, 2023

Accounting Concept

A fundamental principle that governs the accounting practices.
The double-entry system is based on the Accounting Concept of every transaction having a two-fold effect.
Sumera Saeed
Oct 06, 2023

Accounting Convention

Practical guidelines derived from long-standing practices in accounting.
The Accounting Convention of conservatism leads to a cautious approach when there's uncertainty about income or expenses.
Sumera Saeed
Oct 06, 2023

FAQs

What is the Accounting Concept?

Accounting Concept refers to the foundational theoretical principles of accounting.
Sumera Saeed
Oct 06, 2023

How is the Accounting Convention different from Accounting Concept?

Accounting Convention pertains to established practices, while Accounting Concept concerns theoretical principles.
Huma Saeed
Oct 06, 2023

Why are Accounting Conventions important?

Accounting Conventions ensure the practical applicability and consistency of accounting practices.
Sara Rehman
Oct 06, 2023

Are Accounting Concepts universal?

While many concepts are globally recognized, specific interpretations might differ based on accounting standards.
Sumera Saeed
Oct 06, 2023

Can Accounting Conventions change?

Yes, conventions can evolve over time based on practices, business environments, and regulatory changes.
Janet White
Oct 06, 2023

Does every business follow the same Accounting Concepts?

While core concepts are widely accepted, their application may vary based on business type and local regulations.
Aimie Carlson
Oct 06, 2023

Are Accounting Concepts and Conventions legally binding?

Concepts provide the foundation, but it's the accounting standards, influenced by conventions, that often have legal backing.
Janet White
Oct 06, 2023

How do Accounting Conventions support Accounting Concepts?

Conventions provide the practical guidelines to ensure the real-world applicability of foundational concepts.
Sara Rehman
Oct 06, 2023

Are new Accounting Concepts introduced often?

New concepts are rare, but interpretations and applications can evolve based on changing business and economic landscapes.
Sara Rehman
Oct 06, 2023

Can businesses choose which Accounting Convention to follow?

While there's flexibility in some conventions, consistent application is crucial for true and fair financial reporting.
Aimie Carlson
Oct 06, 2023

Which holds more weight, Accounting Concept or Accounting Convention?

Both are essential; concepts provide the theoretical foundation, while conventions ensure their practical application.
Sara Rehman
Oct 06, 2023

Can a business ignore an Accounting Convention?

While some conventions offer flexibility, consistently ignoring them might result in misrepresentation in financial statements.
Harlon Moss
Oct 06, 2023

What's an example of an Accounting Convention in practice?

The convention of conservatism, which recommends understating income and overstating expenses when in doubt.
Sara Rehman
Oct 06, 2023

What happens if Accounting Concepts are ignored?

Ignoring concepts can result in inaccurate financial reporting and misrepresentation of a business's financial health.
Sumera Saeed
Oct 06, 2023

Which is more rigid, Accounting Concept or Accounting Convention?

Accounting Concepts tend to be more stable, while Conventions can adapt more to changing environments.
Aimie Carlson
Oct 06, 2023

Is understanding both Accounting Concept and Accounting Convention crucial for accountants?

Absolutely, understanding both ensures sound theoretical knowledge and effective practical application in accounting.
Sara Rehman
Oct 06, 2023

Why is the consistency Accounting Concept crucial?

It ensures financial statements remain comparable across different periods.
Sumera Saeed
Oct 06, 2023

Do all accountants follow the same Accounting Conventions?

While many conventions are globally recognized, local practices and regulatory nuances can lead to variations.
Aimie Carlson
Oct 06, 2023

Why are Accounting Conventions considered practical guidelines?

They have evolved from real-world accounting practices and experiences, addressing practical challenges.
Sumera Saeed
Oct 06, 2023

How do Accounting Concepts affect financial reporting?

They provide the foundational rules and principles that guide how financial transactions are recorded and presented.
Janet White
Oct 06, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Huma Saeed
Huma is a renowned researcher acclaimed for her innovative work in Difference Wiki. Her dedication has led to key breakthroughs, establishing her prominence in academia. Her contributions continually inspire and guide her field.

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