In financial accounting, accounting concepts, conventions and standards are base to do work in this field.
For understanding accounting conventions, we have to understand conventions. Conventions means rules which has been sanctioned by general custom. These rules are also based on practical approach of customs. For example it is convention to say quantal instead of saying 100 kgs. In accounting, there are many accounting conventions which are used by accountants according to traditional custom. We can explain it following way:
1. Relevance Convention
This accounting convention pressures on the fact that accountant should record only useful information and show which are helpful to achieve the targets of company. Suppose, accountant should interested what is total amount of salary payable or paid or paid in advance. He should ignore what is total expenditure of employee or how much will he save?
2. Objectivity Convention
This accounting convention emphasizes on the case that accounting information should be made according to the general accepted accounting principles. This will be helpful to achieve the objectives of company. For example, accountant should use AS-2 for valuation of inventory. He should calculate the value of closing inventory on the amount of cost or net realisable value which ever is less.
3. Feasibility Convention
This accounting convention accentuates on the truth that in accounting, we should compare each information with its cost and time to collect it. If cost is more than benefits from accounting information, then we should leave that information and concentrate other important accounting information.
For understanding accounting conventions, we have to understand conventions. Conventions means rules which has been sanctioned by general custom. These rules are also based on practical approach of customs. For example it is convention to say quantal instead of saying 100 kgs. In accounting, there are many accounting conventions which are used by accountants according to traditional custom. We can explain it following way:
1. Relevance Convention
This accounting convention pressures on the fact that accountant should record only useful information and show which are helpful to achieve the targets of company. Suppose, accountant should interested what is total amount of salary payable or paid or paid in advance. He should ignore what is total expenditure of employee or how much will he save?
2. Objectivity Convention
This accounting convention emphasizes on the case that accounting information should be made according to the general accepted accounting principles. This will be helpful to achieve the objectives of company. For example, accountant should use AS-2 for valuation of inventory. He should calculate the value of closing inventory on the amount of cost or net realisable value which ever is less.
3. Feasibility Convention
This accounting convention accentuates on the truth that in accounting, we should compare each information with its cost and time to collect it. If cost is more than benefits from accounting information, then we should leave that information and concentrate other important accounting information.
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