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Accounting Conventions
Accounting conventions are practical guidelines that emerge from usage and custom, helping resolve issues where concepts don't provide clear answers.
| Convention | Rule | Example |
|---|---|---|
| Consistency | Same methods each period | Use SLM depreciation in all years, not switch between SLM and WDV |
| Prudence (Conservatism) | Recognise losses early, gains only when certain | Write down inventory to NRV; don't recognise expected profit on long-term contracts until earned |
| Materiality | Only significant items need strict treatment | Stapler worth ₹500 expensed immediately; ₹50 lakh machine capitalised and depreciated |
| Full Disclosure | All relevant information disclosed | Notes to Accounts explaining related-party transactions, contingent liabilities |