CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions
A company in Pune uses the same method of valuing inventory and charging depreciation year after year so that its financial statements can be compared across periods. Which accounting convention is being followed?
The convention is consistency. It requires a business to follow the same accounting policies and methods, such as inventory valuation and depreciation, from period to period, so that financial statements of different years can be meaningfully compared.
- AConsistencyCorrect
- BConservatism
- CMateriality
- DFull disclosure
Explanation
Applying the same accounting methods from one period to the next so that results are comparable is the convention of consistency. Conservatism deals with anticipating losses but not profits. Materiality concerns the significance of items, and full disclosure concerns reporting all relevant information.
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