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Which principle or concept states that business should use the same accounting methods and procedures from period to period?
Learning Objective 1
a. Disclosure
b. Conservatism
c. Consistency
d. Materiality
Accounting principles:The accounting principles are rules of action or conduct which are adopted by the accountants universally while recording accounting transactions. These guidelines are commonly associated with the theory and procedures of accounting of the companies that follow certain structure for reporting financial statements.
To identify:
The principles that states business shall use same accounting procedures from period to period
Answer to Problem 1QC
Solution:
c. The Consistency principle states that business shall have same accounting procedures from period to period.
Explanation of Solution
a) Disclosure −As per the disclosure principle, the firm shall disclose all the relevant information that users of financial statements have a right to know. This information should cover the relevant, reliable and comparable information of the company so that users can use this information to make wise decisions.
b) Conservatism - The goal is to conserve the realistic figures. Its nature is to caution the reporting items in financial statements. Example- “Anticipate no gains, but provide for all losses”
c) Consistency - This principle means once it’s being adopted, it must be applied consistently in future. It helps investors and users of financial statements to easily and correctly compare financial statements of a company from one period to the next.
d) Materiality - The materiality concept applies when it would cause someone to change a decision regarding the information of material used. It is only significant for some items. It doesn’t include all the company. For example − The materials used in the company Apple is not that significant when compared to smaller firms.
The consistency principle states that business has same accounting procedures from period to period. All other principles like disclosure, conservatism and materiality concepts ignore the accounting procedures which carry from period to period.
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