Advantages and Disadvantages of Convention and Concept

In: Business and Management

Submitted By shally786
Words 1407
Pages 6
Advantages of accounting concepts, conventions and regulations.

There are many advantages that accounting concepts have on financial statements. Four important accounting concepts that underpin the preparation of any sets of accounts one of which is going concern that helps an account to assume for any future problems that occur in a business. This helps companies to make future plans and gives them time to gather money to sort out any financial problems. Consistency also has an advantage in helping in accounting by users of accounts can make more meaningful comparisons of financial performance. Prudence helps investors sort out financial performance such as future problems and cost of the business before recognising any signs of profits. Accruals also help financial data to be useful for users by all business revenues and cost are recorded in the appropriate statements and at the appropriate time.

Conventions also have many advantages in influences financial statements to be useful for investors. Separate entity is one example this convention seeks to ensure that all private transactions and matters relating to the owners are segregated from transactions that relate to the business. This is an advantage because owner’s transactions are kept private. Also they are not mixed with the business finance so that users can clearly see the business financial state. Also materiality is also an important convention in a business financial statement use for users. The preparation of accounts involves a high degree of judgment where decisions are made about the appropriateness of an accounting judgement. The materiality convention suggests that this should only be an issue if the judgement is significant or material to the user of accounts. This is an advantage for accounting standards because instead of making changes to everything, changes should only come into action if…...