Accounting concepts, principles, and conventions have a significant role in processing reliable and realistic financial information. These are the set of rules that provide accurate and relevant information about the company’s financial statements. Financial Accounting Standard Board(FASB) prepared this set of guidelines and regulations to help companies prepare and report financial data. Let’s dive into and understand the differences among accounting concepts, principles, and conventions.
Here in this article, you will find a quick overview and key differences between accounting concepts, principles, and conventions.
These are rough ideas and fundamental accounting assumptions that act as a foundation for accounting principles that helps in recording business transactions and preparation of final accounts. The concepts of accounting is the foundation for preparing and maintaining financial statements. Therefore, these concepts are necessary for those willing to pursue a professional career in accounting. The basic accounting concepts are Accrual, conservatism, consistency, economic entity, going concern, matching, and materiality concept.
We will discuss some of the benefits of accounting concepts below:
Accounting principles are the evolved and developed forms of accounting concepts. These are the set of general rules and guidelines that companies must follow in reporting all accounts and financial data. All companies that release their financial information must follow these principles in preparation for their financial statements. Some of the accounting principles are consideration, Revenue recognition, objectivity, and matching consistency.
Let’s highlight some benefits of accounting principles:
The convention refers to common practices universally followed in recording and presenting accounting information of the business entity. These play a crucial role in the transition to record financial transactions as per accounting standards in the company’s accounting system. There are four widely recognized accounting conventions includes conservatism, consistency, full disclosure, and materiality.
Here is the list of some benefits of accounting conventions.
The main difference among accounting concepts, principles, and conventions are presented in the point below:
|Accounting concepts||Accounting Principles||Accounting Conventions|
|Accounting concepts are fundamental assumptions of accounting principles.||Accounting principles are evolved and developed forms of accounting concepts.||Accounting conventions are the consistent use of accounting principles for the long run.|
|Emerged from standard common accounting practice||These standards are issued by GAAP and IFRS||Accounting conventions are set by accounting bodies.|
|It is concerned with the maintenance of accounts.||They create a standard method of reporting the financial details of the business.||Concerned with the preparation of the financial statements.|
|It is the theoretical notions and the rough idea that is applied while preparing financial statements.||The accounting principles are more organized and scientific-based.||These are methods and procedures that give a true and fair view of financial statements.|
|Accounting concepts focus on the recording of transactions and maintenance of accounts.||Accounting principles focus on the fair presentation of company financial data.||The Accounting conventions focus on the preparation and presentation of financial statements.|
|There is no possibility of personal judgment or biases in accounting concepts.||Accounting principles are the building block of GAAP.||In accounting conventions, there is a high possibility of biases.|
|Accounting concepts are rough informal ideas||The Accounting principles convert rough ideas into practical forms.||Accounting conventions are prepared in the light of accounting concepts.|
Well, I have discussed some points about accounting concepts, principles, and conventions. Hope this article helps you differentiate between the three terms. Moreover, these are the base for financial statements, and companies will get reliable and realistic financial data.