Comparison of financial statements of one year with that of another year is possible only when concept........... is followed.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Consistency
Figures of two years can be compared only if they are prepared on the same accounting policies and methods every year (for example, the same method of depreciation and of valuing inventory). This is the concept of consistency. A change in accounting policies distorts the comparison, which is why the book lists it among the limitations of financial analysis.
Option (1) Going Concern — Incorrect. It assumes the business will continue; it does not make two years comparable.
Option (2) Materiality — Incorrect. It decides which items are significant enough to disclose.
Option (3) Consistency — Correct.
Option (4) Accrual — Incorrect. It records revenue and expenses when they arise, not when cash moves.
NCERT (2026-27 edition): |