Conventional accounting refers to the traditional methods and principles used to prepare, analyze, and report financial information. These methods and principles have been developed over time and are widely accepted as the standard for financial reporting.
One of the main principles of conventional accounting is the concept of double-entry accounting. This means that every financial transaction is recorded in two accounts, with one account receiving a credit and the other receiving a debit. This helps to ensure the accuracy and completeness of financial records, as it requires that every transaction be recorded in at least two places.
Conventional accounting also follows the principle of accrual accounting, which means that transactions are recorded in the period in which they occur, rather than when payment is received or made. This helps to provide a more accurate picture of a company's financial performance, as it takes into account all revenue and expenses that have been incurred, regardless of whether payment has been received or made.
In addition to these principles, conventional accounting also involves the use of financial statements to provide information about a company's financial performance and position. The most commonly used financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information about a company's assets, liabilities, and equity at a specific point in time, while the income statement shows a company's revenues and expenses over a specific period of time. The statement of cash flows shows the movement of cash in and out of a company over a specific period of time.
Conventional accounting is used by businesses of all sizes, from small sole proprietorships to large multinational corporations. It is also used by governments, nonprofit organizations, and other entities that need to report their financial information.
In conclusion, conventional accounting refers to the traditional methods and principles used to prepare, analyze, and report financial information. It is based on the principles of double-entry accounting and accrual accounting, and involves the use of financial statements to provide information about a company's financial performance and position.