Importance of Accounting Concepts and Conventions

In this world, everything is important. Nothing is useless. But for knowing the importance of anything, you have to raise your thinking level. You can see the importance in your failure and success of others. You can think that treatment of poisons through poisons. Only after this, you can use that things properly and save from pecuniary losses.

Like other things of accounting, Accounting Concepts and Conventions are also important. These concepts and conventions have been made by accounting experts. They do experiments practically with these concepts and conventions and found that if any accountant will use these concepts and conventions in his professional work, he can save money, energy, time and provide effective services to organization.

I just take one example of accounting concept and its name is Separate Business Entity Concept. This is very helpful for accountant to deal with owner and his money. This concept made accountants so smart. They can take decision within one second when they have to record the transaction of money taken by owner for personal use.

This concept creates confidence in accountant that owner is separate from business. Owner of business is receiver of money, so his account will be debited and same amount will automatically deduct from his capital. If this concept was not made. Many doubts create in the mind of accountants. It may possible that he does not do any journal entry of this transaction because it is general mistake of human being that after coming in this world, he think that I and my is only important and nothing is important other. So, he thinks that there will no effect if he misuses anything. That is the reason; he is still misusing natural resources due to his ownership on all these things. But thanks separate business entity concept that it has given power to accountant to fight with owner of business.

Suppose, a shareholder who had 1$ in the company, he broke the furniture company's office of $10 due to loss of his 1$ in stock exchange. Court had decided that your capital was only 1$ and you had taken $ 10 by breaking furniture. So, please return $ 9 dollar to company accountant. This is just example of my mind's thinking but it is true that these concepts are very very useful for accountants. It is on accountant how he or she takes benefits from these concepts.

Like accounting concepts, accounting conventions are also so significant. I also take the one example of feasibility convention. Suppose, company owner drinks one cup of milk and order to his accountant to enter it in the books, after one hour he again drinks one more cup of milk and order to his accountant to enter it in the books. His accountant does what his owner says to him. Suppose, in one day he drinks 5 cup and its cost is just $ 2 but salary of accountant is $ 10,000.

 I think both accountant and owner are dull because they both do not know the great custom which is taught in accounting conventions that only useful transaction will be recorded by accountant. But we see in above example, cost of collecting accounting information is $ 10,000 and we can take maximum benefit of $ 300 by recording the transactions of one month payments of milk cups. Accountant can record this whole transaction with one journal entry and do any other important work, if he has the good knowledge of feasibility convention.