Question

Discuss accounting conventions underpinning the statement of financial position

Answer 1

Accounting conventions refer to the standards or guidelines which are to be followed in the preparation of the statement of financial position. The four accounting conventions required are:

Conservatism:

It means recognizing any unexpected losses but not recognizing any unrealized gain.

Disclosure:

All important financial information should be disclosed.

Consistency:

The same accounting policies should be followed year on year.

Materiality:

All material information i.e. information affecting the decision of the users of financial statements should be reported.