Difference between accounting concept and accounting convention

Main difference

The main difference between the accounting concept and the accounting convention is that the accounting concepts are the essential accounting assumptions that act as the basis for the recording of business transactions and the preparation of the final accounts and the accounting conventions are the technical and Procedures that have universal acceptance, these are followed by the signature during the recording of transactions and preparation of the financial statements.

Accounting versus accounting convention concept

The accounting concepts are related to a set of established principles that ensure that the accounting information presented in a truthful and fair manner, various concepts have been established as standard accounting principles, while the conventions are a set of practices that are generally accepted and followed by the accountants. Accounting concepts created by professional organizations and also supported by law, and governing bodies as standard principles that were followed in the preparation of financial statements, on the other hand, conventions are accepted as the norm and are not recorded or written formally by professional bodies or government organizations. .

Comparative chart

Accounting concept Accounting agreement
Accounting concepts refer to the accounting rules that must be followed when recording business transactions and preparing final accounts. The accounting conventions imply the customs or practices that are widely accepted by the accounting bodies and are accepted by the firm to function as a guide in the preparation of the final accounts.
Worried
Account maintenance Preparation of financial statements
What is it?
A theoretical notion A method or procedure
Set by
Accounting bodies Common accounting practices
Biases
Impossible Possible

What is the concept of accounting?

Accounting concepts understood as the basic accounting assumption, which acts as the basis for the preparation of the financial statement of a company. In fact, these constitute a cause to formulate the principles, methods and accounting procedures, to record and present the financial transactions of a company. Each financial transaction that is carried out is interpreted taking into account the accounting concepts, which guide the accounting methods.

  • Business Entity Concept – A business and its owner must be processed separately for their financial transactions.
  • Money measurement concept: Only business transactions that are expressed in terms of money are recorded in the ledger, although records of other types of transactions are kept
  • Double aspect concept: it is the main rule of accounting, which states that each transaction affects two accounts.
  • Going concern concept : In accounting, it is presumed that companies continue for a long time and comply with their commitments and obligations.
  • Cost concept : This concept retains that all assets or capital of the company are recorded in the accounts at their purchase price.
  • Accounting year concept: each company chooses a particular period to complete a cycle of the accounting procedure, for example, monthly, quarterly or annually, depending on a fiscal year or calendar.
  • Correspondence concept : the concept holds that income for the period must match expenses.
  • Concept of realization: According to this concept, the company must record income only when it occurs.

What is the accounting agreement?

Accounting conventions are a group of practices generally accepted and followed by accountants. These conventions have been confirmed over time, are followed as practice, and may change depending on changes in the financial landscape. Accounting conventions are practices that are generally accepted as the norm and are not formally recorded or written by professional bodies or leading organizations. Accounting conventions can cover a variety of topics including how to handle situations ethically, what actions to take when faced with special problems, how to report and expose special sensitive information, etc. With the emergence of new accounting problems, new financial products, and changes in the financial reporting landscape, new conventions developed.

  • Conservatism: is the convention whereby, when two values ​​of a transaction are available, the transaction with the lowest value is recorded. Under this convention, profits are never overestimated and there must always be a condition for losses.
  • Consistency: Decreased the use of the same accounting principles from one period of one accounting cycle to the next so that the same rules or criteria are applied to calculate profit and loss.
  • Materialistic: It means that all material facts are recorded in accounting. Accountants should record important facts and information and omit insignificant information.
  • Full disclosure : Involves the disclosure of all information, both favorable and detrimental to a business company, and that is of fundamental importance to creditors and debtors.

Key differences

  1. Accounting concept defined as the accounting conjecture that the accountant of a company follows when recording business transactions and drawing up final accounts. On the contrary, the accounting conventions indicate procedures and principles that are generally accepted by the accounting bodies and accepted by the firm to guide when preparing the financial statement.
  2. Although the concept of accounting established by accounting bodies, accounting conventions arise from common accounting practices, which are accepted by general agreement.
  3. There is no opportunity for bias or personal judgment in adopting an accounting concept, while the opportunity for bias is high in the case of accounting conventions.
  4. The concept of accounting is nothing more than a conceptual or abstract notion that is applied when preparing financial statements. On the contrary, accounting conventions are the forms and procedures that are followed to give a true and fair view of the financial statement.
  5. The concept of accounting is related to the recording of transactions and the maintenance of accounts. In contrast, accounting conventions focus or focus on the preparation and presentation of financial statements.

Final Thought 

Concisely, the accounting concept and conventions summarize the points on which financial accounting is based. The concept of accounting does not depend on the accounting convention. However, the accounting conventions prepared in light of the accounting concept.

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