Accounting Conventions and Standards
Find out how unsold goods are being valued in business units. You will find that they follow method of valuation of unsold goods. They value unsold goods at cost or market price, whichever is lower, even though market price is higher than cost price. It is the convention, tradition or practice or custom of the business, that business is following every year.
In accounting, there are many conventions or practices which are used while recording the transactions in books of accounts. Institute of Chartered Accountants of India (ICAI), it is main regulatory body for standardization of accounting policies in country has issued a number of accounting standards to bring consistency in accounting practices.
MEANING and CONVENTION of CONSISTENCY
It refers to common practices which are universally followed in recording and presenting accounting information of business. They evolved through regular and consistent practice over years to facilitate uniform recording in accounts. The most important conventions which have been used for a long period are
Convention of consistency
Convention of full disclosure
Convention of materiality
Convention of conservatism
Fig.3.0 Important conventions and Meaning
Convention of Consistency
The convention of consistency means, same accounting principles should be used for preparing financial statements year after year. Meaningful conclusion can be drawn from financial statements of enterprise when there is comparison between them over a period of time. It is possible only when accounting policies and practices followed by enterprise are uniform and consistent.
Fig.3.1 Types of consistency
It is to facilitate comparative analysis of financial statements.
It ensures uniformity in charging depreciation on fixed assets and valuation of closing stock.