Conventions are generally accepted approaches to the application of the accounting concepts. They are agreed on methods of dealing with concepts. The conventions are:
1. Materiality Convention
This principle states that only items of material values are recorded. The accountant must not record items that may not have a significant effect on the statement. e.g depreciation of a Stapler.
2. Consistency Convention
This convention states that the accounting treatment of similar items should be continuously applied from one accounting period to the next in a consistent manner. The method must not be changed at will as this will lead to a distortion of the profits. e.g. A Company using “LIFO” cannot change to “FIFO”.
3. Prudence/ Conservation Convention
This principle states that the accountant should not anticipate income and will normally take the figure that will understate rather than overstate the profit. Moreover, when valuing assets e.g. stock the lower value should be chosen. The business must provide for all losses.