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Convention of Consistency

>> July 17, 2012

Convention of consistency means to use the same accounting methods for making financial statement in different years. When we use same accounting methods, it is easy for us to compare the financial statements of different years. For example there are many inventory valuation methods like LIFO, FIFO and average cost method. If you will use same method of inventory valuation of inventory, it will be very good for comparing the financial statement of two or more years. Closing stock affects both profit and loss account and balance sheet. If there will be consistence in its valuation, we can analyze our financial statement very with accuracy.

Above is just example, when you do your accounting practice, you should use so many accounting procedures and methods, all should be consistent. If you do any change in your accounting tradition, you have to disclose it in the footnote of your financial statement. For example, you have used fixed installment method of depreciation for 10 years, if you applied diminishing method of depreciation in this years, you should disclose this fact in the footnote of your financial statement.

There are two benefit of this. One is with this, management can compare different year's financial statement correctly. Second, we can compare our business's financial statement with other business's financial statement if we know our current methods of accounting which has been used for preparing financial statement.  

Related : Accounting Conventions

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