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Consistency is a concept used when applying accounting methods to a business, the business must continue to use that particular method. For an example if a company is charging depreciation using the straight line method, they must stick with the straight line method. According to this concept,whatever accounting practices(whether logical or not) are selected for a given category of transactions,they should be followed from one accounting period to another to achieve compatibility for example:if depreciation is charged according to a particular method it should be followed year after year for the purpose of comparison. Omair shehzad
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
Yes depreciation expense is also an example of matching concept as in this way part of fixed asset cost is apportioned to income statement and depreciation is not used in cash basis of accounting as there cash purchase is fully expensed in purchasing year.
Advantages: Easy to use Matches Cost to revenues (Matching Concept) Disadvantages: Depreciation can not be charged when the Asset is not in use.
Prudence concept tends to understate the profit . depreciation is a tool through which we record our losses , which means that our profit is declining .This means that depreciation is a supportive tool for reducing profit. Matching concept tends to record the expense to the revenue generated from the assets . Hence depreciation fulfils the requirements of both the concepts .
Consistency is a concept used when applying accounting methods to a business, the business must continue to use that particular method. For an example if a company is charging depreciation using the straight line method, they must stick with the straight line method. According to this concept,whatever accounting practices(whether logical or not) are selected for a given category of transactions,they should be followed from one accounting period to another to achieve compatibility for example:if depreciation is charged according to a particular method it should be followed year after year for the purpose of comparison. Omair shehzad
How does the concept of consistency aid in the analysis of financial statements? What type of accounting disclosure is required if this concept is not applied?
Consistency is a concept used when applying accounting methods to a business, the business must continue to use that particular method. For an example if a company is charging depreciation using the straight line method, they must stick with the straight line method. According to this concept,whatever accounting practices(whether logical or not) are selected for a given category of transactions,they should be followed from one accounting period to another to achieve compatibility for example:if depreciation is charged according to a particular method it should be followed year after year for the purpose of comparision.
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
In accounting the consistency concept means that when a method of accounting is adopted it must be used consistently in the future. If the policy for accounting is changed in any way the nature of the change, the effects the change has on items in the financial statement and the reason for making the change must be fully disclosed by the business. If the consistency concept is not applied then disclosure of changes are made at the discretion of the business.
Yes depreciation expense is also an example of matching concept as in this way part of fixed asset cost is apportioned to income statement and depreciation is not used in cash basis of accounting as there cash purchase is fully expensed in purchasing year.
Explain the concept of depreciation and why organisations need to recognise deprecations expense in the Income Statement.
consistency= means use the method along the useful life of the item e.g: depreciation (straight/ reducing) methods
Advantages: Easy to use Matches Cost to revenues (Matching Concept) Disadvantages: Depreciation can not be charged when the Asset is not in use.
behavioral consistency
Prudence concept tends to understate the profit . depreciation is a tool through which we record our losses , which means that our profit is declining .This means that depreciation is a supportive tool for reducing profit. Matching concept tends to record the expense to the revenue generated from the assets . Hence depreciation fulfils the requirements of both the concepts .
yes