The principle of consistency states that:
A)companies should choose a set of accounting methods and use them from one period to the next.
B)once a company selects an accounting method, it must use that method throughout the company's entire existence.
C)a company may change any accounting method, provided the SEC approves the change.
D)companies should elect to use methods that consistently inflate profits.

Question

Quizplus · Accepted Answer

The principle of consistency states that a company should choose a set of accounting methods and use them consistently from one period to the next. This allows for comparability between financial statements from different periods and helps ensure that financial information accurately reflects the company's performance over time. Choice B is incorrect because companies are allowed to change accounting methods if they have a legitimate reason to do so. Choice C is partially correct - companies may change accounting methods, but they must disclose the change and its effects on financial statements. Choice D is incorrect - companies should not use accounting methods that consistently inflate profits, as this would be unethical and misleading to investors.

The Principle of Consistency States That