Consistency Principle GAAP Example

Consistency Principle is one of the Accounting Concepts and it is included in Generally Accepted Accounting Principles (GAAP). Here we study this accounting concept with the help of examples.

This principle states that similar items should be regarded as same accounting treatment within one set of accounts or from one accounting period to another accounting period of time. For Example, in case of valuation of Inventory, it is better to adopt consistency in the valuation of inventory. If we change our valuation method  i.e., from FIFO to Weighted Average Method, within an accounting period, then in the next year it is very difficult for the company businesses to calculate the value of inventory and net income may be distorted.

It does not mean that we can not change the accounting policies but when we apply this principle then accounting treatment must be same from one accounting period to another then we can change our accounting policy. For Example, in case of Depreciation on Fixed Assets, we can depreciate Furniture on Straight Line Method from one accounting period to another. But after this we can change our depreciation method if it is probable that it is more beneficial for the company businesses to reflect true and fair view of financial statements of the company businesses.