Accounting Convention

                What Is an Accounting Convention?

Accounting conventions are guidelines used to help companies determine how to record certain business transactions that have not yet been fully addressed by accounting standards. These procedures and principles are not legally binding but are generally accepted by accounting bodies. Basically, they are designed to promote consistency and help accountants overcome practical problems that can arise when preparing financial statements.


There are four main accounting conventions:

  • Conservatism
  • Consistency
  • Full Disclosure
  • Materiality


            Accounting conservatism is a financial reporting principle that requires accountants to prepare financial statements with caution and perform proper verification of accounting entries. The U.S. Generally Accepted Accounting Principles (GAAP) requires all companies to adhere to the accounting principles to guarantee the utmost accuracy when reporting their financial statements.


               The consistency principle of accounting states that a company should use the same accounting policies and methods for recording similar events or transactions from one financial period to another. It is necessary that a company consistently apply its accounting methods and policies from one financial year to another. A company can change its accounting methods and policies only and only if there are one or more reasonable grounds to do so and the change reflects a more accurate picture of financial statement.

Full Disclosure:

             The full disclosure principle of accounting is related to materiality concept of accounting and talks about the information disclosure requirements for the users of financial statements of an entity. According to this principal, the management of an entity is required to disclose all the relevant and appropriate information in their financial statements that could impact the decision-making behavior of the users of those statements.


               Like full disclosure, this convention urges companies to lay all their cards on the table. If an item or event is material, in other words important, it should be disclosed. The idea here is that any information that could influence the decision of a person looking at the financial statement must be included.

In earlier post we have leant regarding accounting concepts, here we have seen accounting conventions. We can also call this as accounting principles which plays an important role in Financial statement.

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