— Kishore V, SME and ACW at Edumarz
Consistency Concept:
The consistency convention states that accounting procedures must be applied consistently from one period to the next.
Only when similar accounting principles are followed year after year can the outcomes of various users be comparable.
For example, if a company has been using the straight-line method of depreciation from its purchase or construction, the method should not be changed. However, this does not rule out the possibility of adjustments.
Conservatism Concept:
It is a policy of caution for playing safe.
While recording the business transactions one has to anticipate no income but provide for all possible losses.
Closing stock in the factory is valued at Rs. 35000 at cost price and Rs. 25000 at its realizable price. but why record in the books the value of Rs. 25000 will be considered be in the lower of the two.
According to the realisation concept, any increase in value is not to be accountable unless it has been materialized.
Conservatism convention puts for the restriction on it any unrealized gain was not to be anticipated but provision can be made against all possible losses.