CS Executive · Corporate Accounting and Financial Management · Introduction to Corporate Accounting
A company changes its method of charging depreciation every year to suit the profit it wishes to show. Which accounting convention or concept is mainly violated?
The consistency convention is violated. It requires a business to follow the same accounting methods from year to year so that financial statements remain comparable. Changing the depreciation method arbitrarily to manage profit defeats that comparability.
- AConsistencyCorrect
- BMateriality
- CEntity
- DPeriodicity
Explanation
Consistency requires the same accounting policies to be followed year to year so that results are comparable. Changing methods at will destroys comparability. Materiality concerns significance of items, entity concerns separate existence of the business, and periodicity concerns dividing life into periods.
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