Skip to main content

Accounting Conventions

Accounting Conventions
Convention of Consistency

To compare the results of different years, it is necessary that accounting rules, principles, conventions and accounting concepts for similar transactions are followed consistently and continuously. Reliability of financial statements may be lost, if frequent changes are observed in accounting treatment. For example, if a firm chooses cost or market price whichever is lower method for stock valuation and written down value method for depreciation to fixed assets, it should be followed consistently and continuously.
Consistency also states that if a change becomes necessary, the change and its effects on profit or loss and on the financial position of the company should be clearly mentioned.
Convention of Disclosure
The Companies Act, 1956, prescribed a format in which financial statements must be prepared. Every company that fall under this category has to follow this practice. Various provisions are made by the Companies Act to prepare these financial statements. The purpose of these provisions is to disclose all essential information so that the view of financial statements should be true and fair. However, the term ‘disclosure’ does not mean all information. It means disclosure of information that is significance to the users of these financial statements, such as investors, owner, and creditors.
Convention of Materiality
If the disclosure or non-disclosure of an information might influence the decision of the users of financial statements, then that information should be disclosed.
For better understanding, please refer to General Instruction for preparation of Statement of Profit and Loss in revised scheduled VI to the Companies Act, 1956:
A company shall disclose by way of notes additional information regarding any item of income or expenditure which exceeds 1% of the revenue from operations or Rs 1,00,000 whichever is higher.
A Company shall disclose in Notes to Accounts, share in the company held by each shareholder holding more than 5% share specifying the number of share held.
Conservation or Prudence
It is a policy of playing safe. For future events, profits are not anticipated, but provisions for losses are provided as a policy of conservatism. Under this policy, provisions are made for doubtful debts as well as contingent liability; but we do not consider any anticipatory gain.
SOURCE: TUTORIALS POINT
Labels:
Location: Singapore

Comments

Post a Comment

Popular posts from this blog

Benefits Of Computer Register

Benefits of Computerized Register When employing a  computerized  method of accounting the on pc, input screens are designed for simple use. The most advantage is that every group action wants solely to be inputted once, in contrast to a manual double entry system wherever 2 or 3 entries are needed. The computerized ledger system is absolutely integrated. This suggests that once a business group action is inputted on the pc it’s recorded in an exceedingly range of various  accounting records  at identical time. The main benefits of a computerized register are listed below: Speed Knowledge entry onto the pc with its formatted screens and inbuilt databases of consumers and provider details and stock records may be applied way more quickly than any manual process. Automatic document production Quick and correct documents production of invoice, credit note, purchase order, printing statement and payroll document are all done mechanically. Accuracy ...
Post a Comment
Read more

MYOB Advanced Business – An Overview

MYOB Advanced Business – An Overview Experience in a fully featured commercial enterprise control gadget that covers your complete commercial enterprise operations, from administration to warehouse and the whole thing in between. Each place of yourbusiness can advantage from MYOB advanced commercial enterprise, be it reduced management time, extra inventory manipulate or actual time control reports – the gains are sizable and substantial. Our local certified community of MYOB superior enterprise companions manage all implementation, training and aid so you acquire the professional, man or woman attention your enterprise deserves. Harness the strength, efficiency and flexibility of the  MYOB software advanced cloud platform for your business. + The usage of the organizational workflow engine – outline movements and approval requests. + Send e-mail notifications to users, customers and providers when sure conditions are happy, like a shipped order or an assigned lead. +...
Post a Comment
Read more

How is Artificial Intelligence Changing the Accounting Industry?

Many accounting companies have started introducing Artificial Intelligence to their business consecutively to shrink the number of time accountants are spending on different tasks, eventually removing tiresome and recurring tasks within the business. In order to understand how AI will positively change accounting without machines taking jobs away from humans, understanding how it works is key – Let’s take a deep look into how machine learning will change the accounting industry. 1. Automated Reporting The AI-powered software system has automated the process of report preparation and translating information into an actionable language which will be simply understood by the end user. It will cut back up to 90% of processing time and price of financial report generation. There are some other AI-based startups that facilitate companies extract meaning parameters from the bills and invoices and further, help them within the categorization of monetary documents. 2. Audit ...
Post a Comment
Read more