Basics of Accounting

Concepts & Conventions

Dr. Rupali Gupta

 Accounting
Principles

Accounting Accounting
Concepts conventions

Accounting provides financial information about a business

organisation.

In order to maintain uniformity and consistency in preparing and

maintaining books of accounts, certain rules/ principles have been
evolved upon which entire accounting is based.

These rules/ principles are classified as concepts and conventions.

 Accounting Concepts
• Accounting Concepts can be understood as the basic accounting
assumption, which acts as a foundation for the preparation of financial
statement of an enterprise.
• Indeed, these form a basis for formulating the accounting principles,
methods and procedures, to record and present the financial transactions
of business.
• These concepts provide an integrated structure and rational approach to
the accounting process.
• Every financial transaction that occurs is interpreted taking into
consideration the accounting concepts, which guides the accounting
methods Concept
 Accounting Conventions
These are customs/ traditions guiding the preparation of accounting
statements.

They are adopted to make financial statements clear and meaningful. They
represent usage or methods generally accepted and customarily used. These
exists in cases where there are different alternatives, which are equally
logical and some of these are generally accepted having consideration of
cost, time, habit or convenience.
 Accounting Principles

Accounting Concepts Accounting Conventions

• Separate Entity Concept

• Disclosure
• Going Concern Concept
• Materiality
• Dual Aspect Concept
• Money Measurement Concept • Consistency
• Cost Concept
• Conservatism
• Accounting Period Concept
• Accrual Concept
• Matching Concept (periodic
matching of cost and revenue)
• Realisation Concept (revenue
recognition)
• Verifiable Object Evidence Concept
 Accounting Conventions

o Consistency: Financial statements can be compared only when the

accounting policies are followed consistently by the firm over the period.
However, changes can be made only in special circumstances.

o Disclosure: This principle state that the financial statement should be

prepared in such a way that it fairly discloses all the material information to
the users, so as to help them in taking a rational decision.

o Conservatism: This convention states that the firm should not anticipate
incomes and gains, but provide for all expenses and losses.

o Materiality: This concept is an exception to the full disclosure convention

which states that only those items to be disclosed in the financial
statement which has a significant economic effect.