Consistency concept had been applied in principles of accounts (POA) most obviously in depreciation. So, what is depreciation? Depreciation is the reduction in value of an item over time due to wear and tear, usage, obsolesce and legal limits. We will discuss depreciation in a different post. For now, we shall understand that depreciation has two methods of depreciation – Straight line method and Reducing balance method.
Consistency concept states that accounting methods or treatment of accounts must be consistent from period to period. To apply this concept into the depreciation, this means that the business is not to change its methods of depreciation period by period. In other words, the method of depreciation should be consistently maintained the same.
The reason for doing this is to make sure that the underlying concept of accounting remains the same so as to make comparison meaningful from period to period. Imagine a company that changes its way of accounting period from period, it will not be fair to make any fair judgement out from the accounts. It is as though the teacher kept changing the passing mark from this year 50 marks to next year 60 and the year after 40. It will be hard for the student to track his or her performance and compare it to last year.
If you want to know the techniques to learn for learning Principles of Accounts (POA), read up Learning Principles of Accounts (POA) and Scoring As.
Felix Lim is the coach for Principles of Accounts (POA) Tuition class in Edulight Learning Hub. Experience in the line of coach Principles of Accounts (POA) for over 10 years, he understood well how students learn through the wrong methods. He seeks to correct the wrong methods of learning in Principles of Accounts (POA) and advocate “Understanding not Memorizing” in his teachings.
You can visit Edulight Learning Hub to understand more about him and his tuition sessions.