The main difference between Accounting Concept and Accounting Convention is that Accounting concepts are the essential accounting assumptions that act as a ground for recording business transactions and preparation of final accounts and Accounting conventions are the techniques and procedures which have universal acceptance, these are followed by the firm while recording transactions and preparation of the financial statement.
Accounting Concept vs. Accounting Convention
Accounting concepts relate to a set of principles set in place which ensures that accounting information presented in a true and fair manner, several concepts have been established as standard accounting principles whereas conventions are a set of practices that generally are accepted and followed by accountants. Accounting concepts created by professional organizations and also backed by law, and governing bodies as standard principles that followed in the preparation of financial statements on the other hand conventions are accepted to be the norm and not recorded or written down formally by professional bodies or governing organizations.
What is Accounting Concept?
Accounting Concepts understood as the basic accounting assumption, which acts as a foundation for the preparation of the financial statement of an enterprise. Indeed, these form a cause for formulating the accounting principles, methods and procedures, to record and present the financial transactions of a business. Every financial transaction that takes place is interpreted taking into consideration the accounting concepts, which guides the accounting methods.
- Business Entity Concept: A business and its proprietor should be processed separately as far as their financial transactions are concerned.
- Money Measurement Concept: Only business transactions that stated in terms of money are recorded in accounting, though records of other types of transactions kept
- Dual Aspect Concept: It is the main rule of accounting, which states that every transaction affects two accounts.
- Going Concern Concept: In accounting, business is presumed to continue for a fairly long time and carry out its commitments and obligations.
- Cost Concept: This concept retains that all the assets or capital of the enterprise recorded in the accounts at their purchase price.
- Accounting Year Concept: Each business chooses a particular period to complete a cycle of the accounting procedure—for example, monthly, quarterly, or annually—as per a fiscal or a calendar year.
- Matching Concept: The concept holds that, the income for the period, should match the expenses.
- Realization Concept: As per this concept, revenue should be recorded by the firm only when it realized.
What is Accounting Convention?
Accounting conventions are a group of practices that are generally accepted and followed by accountants. These conventions have been confirmed over time, and are followed as a practice and can change relying on the changes in the financial landscape. Accounting conventions are practices that are usually accepted to be the norm and not recorded or written down formally by professional bodies or leading organizations. Accounting conventions can cover assorted issues including how to handle situations ethically, what actions to take when faced with special issues, how to report and expose special sensitive information, etc. With the rise of new accounting problems, new financial products, and changes in the financial reporting landscape, new conventions developed. Examples of conventions include consistency, objectivity, disclosure, etc.
- Conservatism: Is the convention whereby, when two values of a transaction are available, the lower-value transaction recorded. By this convention, profit never overestimated, and there should always be a condition for losses.
- Consistency: Decreed the use of the same accounting principles from one period of an accounting cycle to the next so that the same rules or criteria are applied to calculate profit and loss.
- Materialist: Means that all material facts recorded in accounting. Accountants should record important facts and information and leave out insignificant information.
- Full Disclosure: Entails the revelation of all information, both favorable and detrimental to a business enterprise, and which are of material thing to creditors and debtors.
- Accounting concept defined as the accounting conjecture which the accountant of a firm follows while recording business transactions and drafting final accounts. Conversely, accounting conventions indicate procedures and principles that are generally accepted by the accounting bodies and accepted by the firm to guide at the time of preparing the financial statement.
- While accounting concept set by the accounting bodies, accounting conventions emerge out of common accounting practices, which are accepted by general agreement.
- There is no opportunity of biases or personal judgment in the adoption of an accounting concept, whereas the opportunity of biases is high in case of accounting conventions.
- Accounting concept is nothing but a conceptual or abstract notion that is applied while preparing financial statements. On the contrary, accounting conventions are the ways and procedure which are followed to give a true and equitable view of the financial statement.
- The accounting concept is related to the recording of transactions and the maintenance of accounts. As against, the accounting conventions concentrate or focus on the preparation and presentation of financial statements.
Concisely, the accounting concept and conventions overview those points on which financial accounting based. Accounting concept does not depend on accounting convention. However, accounting conventions prepared in the light of accounting concept.