Accounting Concepts and Convention

Accounting Concepts and Convention -...

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Accounting concepts and conventions In drawing up accounting statements, whether they are external "financial accounts" or internally-focused  "management accounts", a clear objective has to be that the accounts fairly reflect the true "substance" of the  business and the results of its operation. The theory of accounting has, therefore, developed the concept of a  "true and fair view" . The true and fair view is  applied in ensuring and assessing whether accounts do indeed portray accurately the business' activities. To support the application of the "true and fair view", accounting has adopted certain concepts and conventions which  help to ensure that accounting information is presented accurately and consistently. Accounting Conventions The most commonly encountered convention is the  "historical cost convention" . This requires transactions to be  recorded at the price ruling at the time, and for assets to be valued at their original cost. Under the "historical cost convention", therefore, no account is taken of changing prices in the economy. The other conventions you will encounter in a set of accounts can be summarised as follows: Monetary  measurement Accountants do not account for items unless they can be quantified in monetary terms. Items 
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This note was uploaded on 10/12/2011 for the course ACCOUNTING 221 taught by Professor Staff during the Spring '11 term at North South University.

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Accounting Concepts and Convention -...

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