9 Questions
What is the difference between accounting concepts and conventions?
Concepts are basic ideas underlying the preparation of financial statements, while conventions are specific accounting practices.
Which accounting principle states that expenses should be recognized in the same period as the revenues to which they relate?
Matching principle
What is the historical cost convention in accounting?
Assets are recorded at their original purchase price and not adjusted for changes in market value.
What is the purpose of accounting concepts and conventions?
To provide a framework for preparing and presenting financial statements
Which of the following is an example of an accounting convention?
Conservatism principle
What does the historical cost convention in accounting emphasize?
Recording assets at their original purchase cost
What is the main purpose of accounting concepts and conventions?
To ensure consistency and comparability in financial reporting
Which of the following is an example of an accounting convention?
Prudence concept
What is a key difference between accounting concepts and accounting conventions?
Accounting concepts are basic assumptions while accounting conventions are specific practices
Study Notes
Accounting Concepts and Conventions
- Accounting concepts refer to the basic ideas and assumptions that underlie the preparation and presentation of financial statements, such as the accruals concept, consistency concept, and materiality concept.
- Accounting conventions, on the other hand, are customs or traditions that guide accounting practices, such as the historical cost convention and the going concern convention.
Matching Principle
- The matching principle states that expenses should be recognized in the same period as the revenues to which they relate.
Historical Cost Convention
- The historical cost convention in accounting emphasizes that assets and liabilities should be recorded at their original purchase price or value, rather than their current market value.
- This convention assumes that the acquisition cost of an asset is the best indicator of its value.
Purpose of Accounting Concepts and Conventions
- The main purpose of accounting concepts and conventions is to ensure consistency, comparability, and reliability in financial reporting, enabling stakeholders to make informed decisions.
Examples of Accounting Conventions
- The historical cost convention and the going concern convention are examples of accounting conventions.
Key Difference between Accounting Concepts and Conventions
- A key difference between accounting concepts and accounting conventions is that concepts are fundamental principles guiding accounting practices, while conventions are customs or traditions guiding specific practices.
Test your knowledge of accounting concepts and conventions with this quiz. Explore the differences between the two and understand the principle that governs the recognition of expenses in relation to revenues. Learn about the historical cost convention and enhance your understanding of fundamental accounting principles.
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