Difference between Accounting Concept and Accounting Convention

Organisations need a set of rules for the preparation of final accounts and financial statements. There are some universal sets of rules and regulations that all organisations are advised to follow. Accounting Concepts and Accounting Conventions lay down various rules and obligations that an enterprise needs to follow while preparing books of accounts. Accounting Concepts form the foundation for the final accounts that need to be prepared by the accounting firm, and they are legally bound. Accounting conventions set the foundation for the preparation of financial statements but are not legally bounding.

What are Accounting Concepts?

Accounting Concepts form the foundation for the final accounts that need to be prepared by the accounting firm. Accounting concepts are a kind of language that forms the basis to record business transactions. It tells the accountant about how should they record, summarize and present the reports to the stakeholders. The accounting concepts form a universal process that all accountants should follow.

Key Takeaways from Accounting Concepts:

• Some of the Basic Accounting Concepts are business entity concept, cost, dual-aspect concept, going concern concept, consistency, matching concept, money-measurement concept, etc.
• Accounting concepts are important because they set standards for firms, create a basic approach to preparing financial statements, ensure that the accountant is recording the information in a timely manner, etc.
• Accounting concepts ensure that businesses are preparing the financial report in a true and fair manner.

What are Accounting Conventions?

Accounting Conventions come into the picture when guidelines are needed by the company to track business activities that are not fully addressed by accounting standards. Accounting conventions are not legally binding but still accepted in order to keep uniformity in the preparation of financial statements.

Key Takeaways from Accounting Conventions:

• Some of the Basic Accounting Conventions are conservatism, consistency, full disclosure, materiality, etc.
• Accounting conventions are not legally binding, yet accepted by organisations as they provide a standardised methodology for all the companies.
• They ensure that accountants record the transactions, in the same way, to comply with uniformity.
• Accounting conventions help in the comparison between the accounting reports of two firms.

Difference between Accounting Concept and Convention