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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
N. K. Gupta posted an Question
April 02, 2021 • 22:30 pm
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30 points
30 points
- UGC NET
- Commerce
The concept of consistency, the prudence concept explain clearly
the concept of consistency, the prudence concept explain clearly
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Rucha rajesh shingvekar
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The concept of consistency means that accounting methods once adopted must be applied consistently in future. Also same methods and techniques must be used for similar situations. It implies that a business must refrain from changing its accounting policy unless on reasonable grounds. In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. This policy tends to understate rather than overstate net assets and net income, and therefore lead companies to "play safe". As per prudence, liabilities should not be understated. Thus, the value of liabilities will always be on a higher side than what it should be. For example, employees are about to retire. When the expense for the same is recorded, the corresponding liability should also be recognized.
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Sapare bhavani bai Best Answer
The consistency principle states that once you decide on an accounting method or principle to use in your business, you need to stick with and follow this method or principle consistently throughout your accounting periods. Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses. Consistency is all about sticking to one principle whereas prudence is not to overestimate revenue
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