A business firm goes through a lot of transactions in a year. Accounting is a system of maintaining these transactions for record purposes.
Accounting is a system through which an accountant analyzes and records all the transactions. Accounting concepts and accounting conventions are two aspects of accounting.
Accounting Concept vs Accounting Conventions
The main difference between the Accounting concept and accounting conventions is that the Accounting concept is universally accepted. They do not undergo any changes. On the other hand, Accounting conventions are the terms that are accepted only inside a business firm. Universally they are not accepted. There can be changes made in Accounting Conventions.
Briefly, Accounting Concepts can be described as a language that could be used to summarize, report or classify all the transactions going in or through a business enterprise. They are a set of assumptions accepted and understood globally. These terms are fixed and no changes can be made to them.
Accounting conventions are a set of rules that are to b followed while accounting. These rules or guidelines are followed by the business enterprise, internally. Globally, the use of these terms is not acceptable. Although they are not legally accepted, they can be understood in transactions between other companies.
Comparison Table Between Accounting Concepts and Accounting Conventions
|Parameters of Comparison||Accounting Concepts||Accounting Conventions|
|Definition||They are the basic rules used to write business transactions.||They are a set of guidelines to maintain a data of transactions.|
|Bias||No bias can be done in accounting concepts.||They can undergo bias.|
|Legal Binding||They are legally supported and accepted globally.||They are not approved by law.|
|Usage||They are mostly used to maintain accounting balance.||They are used to issue a financial year at the end of the financial year.|
|Given by||They were given by accounting bodies.||They are accepted by practices of an accountant.|
|Followed by||Every firm follows them.||They are theoretical and so, not every firm follows them.|
What is Accounting Concept?
Accounting concepts are a set of assumptions that can be used to record, summarize or analyze transactions that, are made by business transactions.
Accounting Concepts are accepted universally. They were given by accounting bodies that made them globally acceptable.
These accounting bodies consisted of a group of accounting experts. Accounting Concepts are usually used to manage accounting balance. They cannot undergo any bias. As they are given by the experts and accepted globally, they are not supposed to go through any changes.
A brief knowledge about some accounting concepts are under the following:-
- The business entity- This term refers to the business that in no way is affected by the owner. The company is independent of the owner.
- Consistency- Each year an accountant writes the transactions in a way, such that they appear consistent with last year. It makes a reviewer easier while comparing.
- Cost- This concept includes the way an accountant writes the costs. This cost is supposed to be only the purchase cost.
- Money Measurement- This concept includes the concept that only monetary transactions are supposed to be written in the account book.
Except for the above listed, some other terms like the Dual concept, periodicity, prudence, realizations are also part of accounting concepts.
What is Accounting Conventions?
Accounting conventions are a set of guidelines to maintain an accounts book. Accounting conventions are developed over some time.
The people used to use these conventions while maintaining accounts book and slowly and steadily they became part of our life. They are not legally bound. That is, no law supports the use of these conventions.
Over time, these accounting conventions have become a part of our daily life. Hence, an accountant can understand them.
Some Accounting conventions are listed below:-
- Conservatism- A brief knowledge about all the assets and liabilities are supposed to be mentioned. An accountant safely writes these, so that there are no future effects.
- Consistency- While working in the same company, an accountant applies the same principle. This convention allows a better understanding of accounts book for future uses.
- Materiality- While maintaining a financial statement, companies share information. This information is supposed to be of all evets or items as materials. This is done for future uses.
- Full Disclosure- An accounting body shares all information about all the transactions happening inside a company. All the information which is considered important is supposed to be shared.
These accounting conventions can undergo bias. This means changes can be made to them.
Main Differences Between Accounting Concepts and Accounting Conventions
- Accounting concepts are the basic rules used to manage account books. On the other hand, Accounting Conventions are the guidelines that are developed internally to write business transactions.
- Accounting Concepts do not acquire any bias., I.e., they can’t undergo any changes. Opposite to this Accounting Conventions can change.
- Accounting Concepts are legally supported by law. On the contrary, Accounting Conventions are not legally binding.
- Accounting concepts and Accounting conventions differ in their usage. Accounting Concepts are used to manage an account book, whereas Accounting Conventions are used to present account books at end of the financial year.
- Accounting Conventions we’re developed over some time by practices of accountant in. On the other hand, Accounting Concepts are developed by Accounting bodies.
- Accounting concepts are followed by every business firm. Contrary to this, Accounting Conventions can or cannot be followed by business firms.
To sum up, everything that has been stated, accounting concepts are the rules established by accounting bodies. They are meant to be followed by every firm. Most accounting concepts are used to manage account books.
Contrary to this, accounting conventions was not established by accounting experts. It was done by accountants in their daily practices. In their daily practices, some conventions were used which now became an integral party, followed by almost everyone.
They are not bound by law. So, no law states mandatory use of Accounting conventions. They are usually used while presenting financial statements. This financial statement is made at the end of every financial year.