Consistency

Definition

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

1. Consistency in inventory valuation methods ensures accurate financial comparisons across periods.
2. Switching inventory valuation methods without proper disclosure can mislead stakeholders.
3. The consistency principle is crucial for maintaining reliable and stable financial reporting.
4. Adhering to consistency helps in detecting trends and making informed business decisions.
5. GAAP requires companies to disclose any changes in accounting methods and the reasons behind them.

Review Questions

Related terms

Inventory Valuation Methods:

Techniques used to assign costs to inventory and determine cost of goods sold, such as FIFO, LIFO, and Weighted Average.

Cost Flow Assumptions:

Assumptions about how costs move through inventory, impacting both balance sheet values and income.

GAAP:

Generally Accepted Accounting Principles that provide guidelines for financial accounting practices, including consistency requirements.