Question

explain the convention of consistency with example

Answer 1

The convention of consistency is an accounting principle that states that "the management accounting principles should be used for making financial statements over a period of time".

Explanation:

• For example, if a corporation uses the cost flow assumption of FIFO to value its inventory and to control the prices of the products sold.

• Because of the increasing prices of the materials used, it comes to the end that LIFO will be better to depict the true profit of the company.

• In the year, when the corporation went from FIFO to LIFO, the company must reveal the crack in its consistency.