Question 2
Accounting Concepts and ConventionsWhich of the following accounting conventions suggests that accountants should use a method of valuation that understates rather than over-states results?
- A.Conservatism
- B.Historical
- C.Monetary
- D.Cost.
Show the answer and explanation
Answer: A (Conservatism)
Explanation
Conservatism (prudence) means providing for likely losses but not counting profits until they are earned, so results are understated rather than overstated.