Accounting Concepts can be understood as the basic accounting assumption, which acts as a foundation for the preparation of financial statement of an enterprise. Indeed, these form a basis for formulating the accounting principles, methods and procedures, to record and present the financial transactions of business. On the other extreme, accounting conventions are the methods and procedures which have universal acceptance. These are followed by the firm while recording transactions and preparation of financial statement. Let’s take a look at the article to understand the difference between accounting concept and conventions.
What would become the American Institute of Certified Public Accountants (AICPA) and the New York Stock Exchange (NYSE) attempted to launch the first accounting standards to be used by firms in the United States in the 1930s. Although privately held companies are not required to abide by GAAP, publicly traded companies must file GAAP-compliant financial statements to be listed on a stock exchange. Chief officers of publicly traded companies and their independent auditors must certify that the financial statements and related notes were prepared in accordance with GAAP.
Objectives of Accounting Concepts
The accounting concept conservatism simply states that accounts and transactions should contain realistic and not overly optimistic results in the current period or the future. For example, the LIFO method of accounting and the lower of cost or market (LCM) is generally used because both of these methods postpone the recording of net income. Therefore, they are more conservative or paint the company in a more realistic light.
Therefore it becomes necessary to list all of the assets in the same monetary terms so that all accounts can remain in a neat and orderly fashion. The Stable-Monetary Unit Concept also ignores the effects of inflation and the ever changing value of currencies – which are exchanged in the open market. However, the FASB and Q. Explain the various accounting concepts? the IASB continue to work together to issue similar regulations on certain topics as accounting issues arise. For example, in 2014, the FASB and the IASB jointly announced new revenue recognition standards. Consistency means that once accounting procedures have been chosen, they must be applied consistently in the future.
Who sets accounting principles and standards?
It suggests that a company must not change its accounting policy unless there are compelling reasons to do so. Also known as the continuity concept, the going concern concept simply states that a business entity (see above) will continue to exist and remain in business in the remaining future. When this happens, the business has to liquidate or sell off the assets to pay off the liabilities first. However, if the business https://accounting-services.net/bookkeeping-detroit/ continues to grow and remain in business, then the business cannot easily measure the current value and it becomes a going concern. IFRS is a standards-based approach that is used internationally, while GAAP is a rules-based system used primarily in the U.S. IFRS is seen as a more dynamic platform that is regularly being revised in response to an ever-changing financial environment, while GAAP is more static.
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