Question

a) Explain the difference between accounting policies and accounting practices

b) Provide examples for each (4 makrs)

nb. seprate a and b

Answer 1

Accounting policies are the rules, methods, norms and accounting practices which a business adopts to follow out of available alternatives of these rules, methods or practices.

For example, Company A may adopt to charge depreciation on its equipments using Streight Line Method whereas company B may charge depreciation using Written Down Value Method.

So, its a matter of Accounting Policy of acompany to adopt the method and rate of depreciation.

Whereas Accounting Practices are the regular procedure and activities the business follows to maintain a record of its fianacial affairs. While deciding on the Accounting practices it is kept in mind that it should bring reliability and transperency in the accounting records.

For example, A business may keep an internal accountant to record petty expenses and may be given some amount of cash to be used to meet these expense.But vouchers of these expenses should neccesorily be authorized by the head accountant.

Now, this procedure of control created by the business is an accounting practice and it increses reliablility in accounting records of petty cashier.

Thus, Accounting policies are choices made by the business out of available sets of accounting methods, procedures and practies , whereas accounting practices are related to procedural ways of recording into books of accounts.