Consistency refers to the accounting principle where companies must apply the same accounting methods and procedures from one period to another. This ensures comparability of financial statements over time.
5 Must Know Facts For Your Next Test
Consistency in inventory valuation methods ensures accurate financial comparisons across periods.
Switching inventory valuation methods without proper disclosure can mislead stakeholders.
The consistency principle is crucial for maintaining reliable and stable financial reporting.
Adhering to consistency helps in detecting trends and making informed business decisions.
GAAP requires companies to disclose any changes in accounting methods and the reasons behind them.
Review Questions
Why is consistency important in applying inventory valuation methods?
What could happen if a company frequently changes its inventory valuation method?
How does the consistency principle contribute to financial statement reliability?