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Theory Base of Accounting — Account STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceAccountTheory Base of Accounting4 Marks
Question
Why is it important to adopt a consistent basis for the preparation of financial statements? Explain.
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Answer

It is important to adopt a consistent basis for the preparation of financial statements because it helps in comparability of financial statements. For Example: if a firm choose straight line method for showing depreciation but in the next accounting period switched over to written down method then the results of this year cannot be compared to that of the previous years. However, it does not mean that firm cannot changes its accounting policies. A better method, if available which will lead to better presentation and better understanding of the financial results, the firm may adopt but it must be stated clearly by way of footnotes to enable the users of the financial statements to be aware of the changes.

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