accounting conventions|types of conventions

The term accounting conventions cannot signify customs or traditions as a guide to the preparation of accounting statements.

Accountancy is based as usages and customs. Custom is a practice which is in us for long. Naturally, accountants have to adopt that custom. These are formed as conventions in accounting. Major conventions are used in the preparation of final accounts also. 

Types of accounting convention :

1. Convention of conservatism: This concept emphasizes that profit should never be overstated or anticipated traditionally accounting follows the rule "anticipate no profit and provide for all possible losses." For example  

          The closing stock in valued of "cost" price or market price, whichever is lower. The effect of the above is that in care market price has come down them provide for the anticipated loss but it the market price has gone up then ignore them anticipated profit. 

2. Convention of materiality: It refers to the relative's importance of an item or event. Those who make accounting decision continually conformant the need to make judgments regarding materiality. The essence of the materiality the concept is the omission or misstatement of an item is material if in the light of surrounding circumstances the magnitude of the item is such that it is probable that the judgment of a reasonable person relying on the report would have been changed by the inclusion of the item. 

3. Discloser: While making accounting record care should be taken to disclose all material information and not conceal information and facts. Here, an emphasis is only on material information and not on immaterial information. This is done to benefit the proper writer and all those outsides who are directly or indirectly interested in assessing the fined accounts of the business unit. 

4. The consistency concept: It is possible to adopt a variety of principles and procedures for financial events. If in treating a given must two or more contradictory methods are used. It may yield conflicting results. Whatever accounting method a business unit decides to adopt a consistent approach has to be followed. It is very important that the accountant be consistent in applying principles and procedures to similar situations, because of inconsistency in reporting can cause misleading interpretations.

Conclusions- Moreover, the must be sure that the accounts for a particulars business unit for the successive year is comparable with each other.