Which statement best explains the purpose of consistency in accounting?
Correct answer: D. It permits comparison of results between accounting periods
- A. It prevents businesses from preparing financial statements
- B. It requires every asset to be valued at market price
- C. It records transactions only when cash changes hands
- D. It permits comparison of results between accounting periods
Explanation
Using the same accounting methods over time improves comparison between periods. A method may be changed when justified, but the effect and reason should generally be disclosed.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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