Accouting Conventions
Relevance
Relevant information is capable of making a difference in the decisions made by users
Relevant financial information must have a predictive or confirmatory value
Faithful representation
To be perfectly faithful representation, a depiction would have three characteristics. It would be ; complete, neutral and free from error.
Materiality
Will decision making be affected by the omission, non disclosure, misstatement
Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates.
Comparability
Is achieved by allowing comparison between entities and of an entity over time
Comparability enables users to identify and understand similarities in, and, differences among, items.
Verifiability
Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent.
Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.
Understandability
Classifying, characterizing and presenting information clearly and concisely
Presenting information in a form that assists the users of that information.
Timeliness
In assessing faithful representation, relevance and materiality of information a timeframe may pass which precludes the information from being relevant.
Cost constraints
Reporting financial information imposes costs, and it is important that those costs are justified by the benefits of reporting that information.
Consistency
Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.
Accounting
It is the process of identifying, measuring, interpreting and communicating financial and other information to interested people which allows them to make informed decisions about the current and future directions of an enterprise.
Duality;
Total assets = total equities, therefore, every transaction has two impacts. Duality can be seen in the accounting equation.
Monetary convention
Money is the medium of exchange used in transactions
Entity convention
The accounting entity convention or assumption regards the business as being an entity or body separate from the owners.
Going concern
The continuity ( going-concern) convention assumes that the business is going to continue its operations indefinitely and is not likely to be liquidated in the foreseeable future.
Historical cost
The historical cost convention or assumption assumes that the business transactions are recorded in terms of their cost at the time the transaction occured.
Prudence
Accountants will take a conservative or prudent approach to recording financial information. This will ensure that the financial position of the business is not overstated.
Legal Entity
accountants consider a company to be seperate and distinct from the owner. the companies debts therefore do not