 In accounting, we have many principles, assumptions, and concepts that help us determine the proper way to account for transactions. Let's look at a few that have an impact on inventory. In this short video, we'll learn about four principles and concepts that guide us in accounting. They include the consistency and disclosure principles, and the materiality and accounting conservatism concepts. The consistency principle states that businesses should use the same accounting method from period to period. Consistency helps investors compare a company's financial statement from one period to the next. This does not mean that companies can't ever change accounting methods, but if they do, they must disclose any of these changes in their accounting methods that they're using. Well that leads us to the next principle. The disclosure principle requires companies to report enough information in order for external users to make informed decisions about a company. So companies should report relevant, reliable, and comparable information about itself. The materiality concept states that companies must perform strictly proper accounting only for significant items. Information is considered material when it is significant enough to cause someone to change a decision. The materiality concept frees accountants from having to report every last item in the financial statement with 100% accuracy. However, financial statements do need to be free of material errors. Conservatism in accounting means exercising caution in reporting items in the financial statement. Examples of accounting conservatism are reporting all probable future losses, but not future gains. If in doubt, record an asset at its lowest reasonable amount and a liability at the highest reasonable amount. When there is a question, record an expense rather than an asset. The goal of conservatism is to report realistic and not overly optimistic financial data. Throughout your study of accounting, you will learn about more principles, concepts, and assumptions that make up a gap and guide our accounting for financial transactions.