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Conventions as accounting practices

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We can look at conventions as 'practices'.

Why are there so many accounting practices? Are they tightly tied to the 'concepts' in the posting attached? If so, how?

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Solution Summary

The solution looks at conventions as 'practices' and explains why there are so many.

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ACCOUNTING PRACTICES AND PRINCIPLES

On the part of the users, financial statements are utilized as one of their important tools in making decisions. Creditors look into important entries in the balance sheet, income statements, as well as in the statement of cash flows, that will help them understand whether the company has the ability to pay them when the amortizations and the principal are due. Suppliers of raw materials look into entries that manifest the ability of the firm to pay its short-term obligations such as short term liabilities as well current assets that are supposed to be utilized in paying current liabilities. Investors have other concerns such as the chance that their investments will grow as well their chance to earn income in the form of dividends. Hence, varied users have varied concerns when reading and analyzing the financial statements of a company.
On the part of the company, or those involved in the preparation of financial statements, basically, the financial statements made should have complied with the requirements imposed by governmental and accounting authorities that establish accounting policies. These are the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). In fact, there is also another authority to keep in mind, the agency that imposes tax rules and regulations.
Financial statements are supposed ...

Solution provided by:
Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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