consistency

What is Consistency?

Consistency means using the same accounting methods and policies from one period to the next. It ensures that financial statements are comparable over time, just like a recipe that gives the same cake every time you bake it. 🍰

• Choose a method (e.g., straight‑line depreciation) and stick with it.
• Apply the same revenue recognition rules each year.
• When you change a method, disclose the change and explain the impact.

Why It Matters

Consistency helps users of financial statements (investors, creditors, teachers) to:

1. Track performance trends.
2. Make fair comparisons between periods.
3. Trust that the numbers are reliable.

Example: Depreciation

Suppose a company buys a machine for $10,000, expects it to last 5 years, and plans to sell it for $2,000. Using straight‑line depreciation:

$D = \frac{(C - S)}{n} = \frac{(10{,}000 - 2{,}000)}{5} = 1{,}600$ per year

If the company later decides to use an accelerated method, it must disclose the change and show the effect on the financial statements.

Quick Check

Answer the following in one sentence:

1. What does consistency help users of financial statements do?
2. Why must a change in accounting policy be disclosed?

Practice Table