Accounting Convention

Written By
Paul Tracy
Updated June 30, 2021

What is an Accounting Convention?

Accounting conventions are standards, customs or guidelines regarding the application of accounting rules.

Accounting Convention Examples

There are four widely recognized accounting conventions that guide accountants:
1.  Be conservative. In other words, play it safe.
2.  Disclose in full.
3.  Be consistent. In other words, use the same method for calculating and reporting similar events.
4.  Report everything that is important. This is also known as the materiality convention. In other words, an item or event is material (and thus should be disclosed) if knowledge of the event or item might reasonably influence the users of the financial statements.

Generally Accepted Accounting Principles, known as GAAP, are updated regularly, reflect the latest accounting conventions and specific rules, and are the definitive source of accounting guidelines that companies rely on when preparing their financial statements. The standards are established and administered by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB).

Why Accounting Conventions Matter

Accounting conventions provide a standardized methodology that creates a reliable means of comparing financial results from industry to industry and from year to year. Accordingly, accounting conventions govern how companies and people prepare quarterly balance sheets or income statements, 10-Q filings, or annual reports. However, specific GAAP rules are sometimes subject to different interpretations, and unscrupulous companies can find a way to bend or manipulate them to their advantage.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Accounting Convention.
Be the first to ask a question

If you have a question about Accounting Convention, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Accounting Convention, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Accounting Convention

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms