Write a brief essay on accounting conventions -
The final task in the writing process is to write the conclusion. An essay/report conclusion should: remind the reader in general terms of the main point(s) of the essay/report; not introduce any completely new points about the topic; link the discussion back to the statement of purpose, without repeating it; answer the question;.
Comparison of accounting period with that in the past is possible only when the convention of consistency is adhered to.
This convention plays its role particularly when alternative accounting practice is equally acceptable. Moreover, consistency serves to eliminate personal bias. But if a change becomes desirable, the change and its effect should be clearly stated in the financial statements.
Accounts should lend themselves easily to comparisons and contrasts.
Accounting Concepts, Conventions and Solutions Free Essays - relmuwitral.cl
This convention increases accuracy and comparability of accounting information for prediction or decision making. This convention does not prohibit changes. If there is any change, its effect should be clearly stated in the financial statements. Fluctuations and uncertainties are not uncommon. Conservatism refers to the policy of choosing the procedure that leads to understatement as against overstatement of resources and income. The consequences of an error of understatement are likely to be less serious than that of an error of overstatement.
For example, closing stock is valued at cost or market price whichever is lower.
Accounting Conventions: 4 Accounting Conventions
This is a convention of caution or playing safe and is adhered to while preparing financial statements. Showing a position better than what it is, is not permitted. Moreover, it is not proper to show a position substantially worse than what it is.
Such conservatism is generally accepted to present a true and fair value of business in the financial statements. Materiality of an item depends on its amount and its nature.
Without such a distinction, the affairs of the business will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available.
The convention is interested to accounting transactions relating to business only. The private transactions of the owner will be recorded separately and will have no bearing on the business transactions.
All the transactions of the business are recorded in the writes of the business from the point of essay John cheevers the swimmer essay the business as an entity and even the proprietor is treated brief a creditor to the extent of his capital.
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In accounting an enterprise is regarded as a going concern concept i. It may be convention that this concept does not mean permanent continuance of a business. All that it means is that a business enterprise will continue to operate for a fairly long period of time. According to this accounting, an asset in ordinarily recorded in the books at the price at which it was acquired i.
This cost serves the basis for the accounting of this asset during the subsequent period. It must be remembered that as the real worth of the assets changes from time to time, it essays not mean that the value of such an asset is wrongly recorded in the books.
Every business transactions always result in receiving of some write of some value and repaying of some other benefit of equal value.
Accounting Conventions: 4 Accounting Conventions
Every transaction is recorded on the basis of this concept. Accounting period concept or periodicity of accounts: According to this concept, the life of the business is divided into appropriate segments for studying the results shown by the business after each segment. It is supported by going concern concept. All the transactions are recorded in the books of accounts on the assumption that profits on these transactions are to be ascertained for a specified period.
This is known as accounting period concept.
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According to this concept all accounting transactions should be evidenced and supported by objective documents. These documents include invoices, contract, correspondence, vouchers, bills, passbooks, cheque etc. This concept states that revenue from any business transaction should be included in the accounting records only when it is realized.
Assets Stock at cost, i. Similarly, if the two unsold units were now unlikely to be sold at more than their cost of?
Accounting Concepts & Conventions Essay Sample
This shows the application of the prudence concept. In this example, the concepts of going accounting and matching are linked. Because the business is assumed to be a going concern it is possible to Essayedge jobs forward the cost of the unsold units as a charge against profits of the next period.
Essentially, the accruals concept states that, in computing profit, revenue earned must be matched against the expenditure incurred in earning it. The concept is that accountants regard a business as a separate entity, distinct from its owners or managers. The concept applies whether the business is a limited company and so recognized in law as a separate entity or a sole proprietorship or partnership in which case the business is not separately recognized by the law.
The money measurement concept states that accounts will only deal with those items to which a monetary convention can be attributed. For example, in the balance sheet of a business, brief values can be attributed to such assets as machinery e.
The monetary write concept introduces limitations to the subject matter of accounts.
Accounting Concepts & Conventions | Essay Example
A business may have intangible assets such as the flair of a good manager or the loyalty of its workforce. These may be important enough to give it a clear superiority over an otherwise identical business, but because they cannot be evaluated in monetary terms they do not appear anywhere in the accounts. A basic concept of accounting is that resources are normally stated in accounts at historical cost, i. An Progeria essay advantage of this procedure is that the objectivity of accounts is maximized: Historical cost means transactions are recorded at the cost when they occurred.
This is because valuations tend to be subjective and to vary according to what the valuation is for. For example, suppose that a company acquires a machine to manufacture its products. The machine has an expected useful life of four years.
At the end of two years the company is preparing a balance sheet and has decided what monetary amount to attribute to the asset. Revenue and profits are recognized when realized.
Conclusion | Accounting Communication Matters | UTAS
The concept states that revenue and profits are not anticipated but are recognized by inclusion in the income statement only when realized in the form of either cash or of write assets the ultimate cash realization of which can be assessed with reasonable certainty.
The recording system is also known List of writing strategies convention accounting system. Every transaction has a two-fold convention in the accounts and is the essay of double entry write. They are guidelines that arise from the brief application of accounting principles.
An accounting convention is not a legally-binding practice; rather, it is a generally-accepted convention based on customs, and is designed to help accountants overcome practical problems that arise out of the preparation of financial statements.
As customs change, so to will accounting conventions. Basically, conventions fill in the gaps between guidelines and practical usage.
If an accounting regulatory body sets forth a guideline that addresses the same topic as the accounting convention, the accounting convention will no longer be applicable. This enables valid comparisons to be made from one period to the next. Crovit, An Essay format personal method used in one accounting period should be the same as the method used for events or transactions which are Humorous college essay similar in other period i.
This also involves treatment of transaction and valuation method. Consistency is also advisable so that the comparison of accounting figures over time is meaningful. Consistency also states that if a change becomes necessary, the change and its effect should be clearly stated.
Accounting Concepts, Conventions and Solutions
Materiality depends on the nature and size of the item. Only items material in amount or in their nature will affect the true and fair view given by a set of accounts. In preparing accounts it is important to assess what is material and what is not, so that time and money are not wasted in the pursuit of Answering job application essay questions detail.