Could You Describe The Various Types Of Accounting Conventions.


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Sajid Majeed answered
In this convention account the accountant follows the policy of "playing safe". On account of this convention, the inventory is valued at cost or market price whichever less is! Similarly a provision is made for possible bad and doubtful debts out of current year's profits. This concept affects principally the category of current assets.
The convention of conservation has been criticized these days as it goes against the convention of full disclosure.

Full Disclosure:
According to this convention the users of financial statements are informed of any facts necessary for the proper interpretation of the statements. Full disclosure may be made either in the body of financial statements, or in notes accompanying the statements. Significant financial events occurring after the balance sheet date, but before the financial statements have been issued to outsiders require full disclosure.

Consistency: This convention states that once an entity has decided on one method, it should use the same method for all subsequent events of the same character unless it has a sound reason to change methods. If an entity made frequent changes in the manner of handling a given class of events in the accounting records, comparison of its financial statements for one period with those of another period would be difficult.

The term materiality refers to the relative importance of an item or an event. An item is "material' if knowledge of the item might reasonably influence the decisions of financial statements. Accountant must be sure that all material items are properly reported in the financial statement.

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