Question

Accounting conventions are common guidelines and practices—principles, assumptions, and constraints—followed by accounting professionals when recording business transactions. These accounting conventions are standards used by all business organizations, so it is important to understand what they are and how to apply them.

• Revenue recognition.
• Cost effectiveness.

Answer 1

In Accounting, there are many principles, concepts like going concern, dual aspect, matching concept, accural principle etc. But there are 4 major conventions

• Conservatism
• Consistency
• Materiality
• Full disclosure

Conservatism(or Prudence): Holds that caution should be exercised when making accounting judgements - liabilities and losses should not be understated, assets and profits should not be overstated
Application:
- losses recorded all at once and in full (actual and expected)
- profits recognized only when they actually arise

Consistency: If a business has chosen a particular approach to accounting for a particular transaction/event, it must continue to consistently use the chosen policy each year
e.g Depreciation

Materiality: This is the principle in accounting that trivial matters are to be disregarded, and all important matters are to be disclosed - items are material if they can influence decision making

Full disclosure: It calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reade