Q. Differentiate between
comparability and consistency of accounting information (June'13).
Comparability: Comparability allows business owners to
review their companies accounting information against that of a competitor.
Business owners use comparison to gauge how well their companies operate under
certain market conditions. Owners often use the leading company of an industry
for the comparison process. These companies usually have the most efficient and
effective business operations. Non-comparable accounting information can make this
a difficult process. For example, business owners should consider preparing
financial statements according to standard accounting principles. The
statements can then be compared to other company financial standard prepared in
a similar manner.
Consistency: Consistency refers to how business
owners and accountants record financial information in a company general
ledger. Business owners need to ensure financial transactions are handled the
same way. Inventory purchases should be recorded the same way as yesterday,
today and tomorrow. This helps companies create accurate historical records and
limit the amount of financial accounts or journal entries included in their
general ledgers.
No comments:
Post a Comment