What is the difference between accounting concepts and accounting conventions?

Accounting concepts are fundamental assumptions that are necessary for preparation of financial statements (e.g., going concern, accrual, matching). They are considered self-evident. Accounting conventions are customs/traditions developed over time that guide accounting practice (e.g., conservatism, consistency, full disclosure). Conventions are more flexible and can change.

Explain the Conservatism/Prudence convention with an example.

Conservatism: 'Provide for all probable losses, anticipate no gains.' Example 1: Closing stock valued at cost or market value, whichever is lower — if market price falls, write down; if it rises, keep at cost. Example 2: Creating provision for bad and doubtful debts — expected loss recognised immediately even before it occurs.

What is the basis of Double Entry Bookkeeping?

Double Entry Bookkeeping is based on the Dual Aspect concept — every transaction has TWO equal effects: a debit in one account and a credit in another. This keeps the accounting equation (Assets = Liabilities + Capital) always balanced. Example: Buying goods for ₹5,000 cash — Debit Purchases ₹5,000 (goods come in), Credit Cash ₹5,000 (cash goes out).

Accounting Concepts and Conventions

Introduction to Accounting • Class 11 Accountancy • NCERT • CBSE

Key accounting concepts: Business Entity (business separate from owner), Going Concern (business continues indefinitely), Money Measurement (only monetary transactions recorded), Accrual (record when earned/incurred, not paid), Matching (expenses match revenues of same period), Consistency, Materiality.

Key Formulas

Accounting Equation: Assets = Liabilities + Capital
Profit = Revenue − Expenses

Frequently Asked Questions

What is the difference between accounting concepts and accounting conventions?: Accounting concepts are fundamental assumptions that are necessary for preparation of financial statements (e.g., going concern, accrual, matching). They are considered self-evident. Accounting conventions are customs/traditions developed over time that guide accounting practice (e.g., conservatism, consistency, full disclosure). Conventions are more flexible and can change.
Explain the Conservatism/Prudence convention with an example.: Conservatism: 'Provide for all probable losses, anticipate no gains.' Example 1: Closing stock valued at cost or market value, whichever is lower — if market price falls, write down; if it rises, keep at cost. Example 2: Creating provision for bad and doubtful debts — expected loss recognised immediately even before it occurs.
What is the basis of Double Entry Bookkeeping?: Double Entry Bookkeeping is based on the Dual Aspect concept — every transaction has TWO equal effects: a debit in one account and a credit in another. This keeps the accounting equation (Assets = Liabilities + Capital) always balanced. Example: Buying goods for ₹5,000 cash — Debit Purchases ₹5,000 (goods come in), Credit Cash ₹5,000 (cash goes out).

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