Concept of conservatism, Accounting Basics

Concept of Conservatism:

The concept of conservatism, also termed as the concept of prudence, is frequently stated as "anticipate no profit, give for all possible losses". It implies as an accountant must follow a cautious approach. Facing an option, he must record the lowest possible value for revenues and assets, and the highest possible value for expenses and liabilities. As per to this concept, revenues or gains should be recognized only while they are realized in the form of cash or assets as generally legally enforceable debts the ultimate cash realization of that can be assessed along with reasonable certainty. Moreover, provision should be made for all identified liabilities, expenses and losses where the amount of these is identified with certainty, or is at excellent an estimate in the light of the information obtainable. Probable losses in respect of all contingencies must also be given for. A contingency is a condition, or a condition, the ultimate outcome of that gain or loss such cannot be found accurately at present. This will be termed as only after the event has happened or has not occurred. For illustration, a customer has filed a suit for damage against the company in a court of law. If the judgment will be favorable or unfavorable to the company cannot be found for sure. Thus, it will be prudent to give for likely loss in the financial statements. Since a consequence of the application of this concept, net assets and incomes are more probable to be understated than overstated.

Depends upon this concept is the broadly advocated practice of valuing inventory as stock of goods left unsold at cost or market price, either is lower. You will see this convention, in a manner, modifies the earlier cost concept. This should be stated as the logic of this convention has been in stress recently; this has been challenged through many writers on the ground which it stands in the way of fair determination of profit and the disclosure of fair and true financial location of the business enterprise. The concept is not related as strongly today as it utilized to be in the past. In any condition, conservatism should be applied rationally as over-conservatism may effect in misrepresentation.

Posted Date: 4/3/2013 5:54:32 AM | Location : United States







Related Discussions:- Concept of conservatism, Assignment Help, Ask Question on Concept of conservatism, Get Answer, Expert's Help, Concept of conservatism Discussions

Write discussion on Concept of conservatism
Your posts are moderated
Related Questions
The balance sheet account as of July 31, 1995 for XYZ company are : Capital: (fix lib)                            35,630 Office Equipment (ass)                  16730 Delivery

Finance: It is the part of economics that studies the management of money and other assets. In easier terms it can be explained as the commercial activity of providing funds and c

Company took loans of rs 400000from mbl and issued 8% debentures of rs 500000b as collateral security pass journal entries regarding issue of debentures if any and show the loan in

Recording and reporting stock transactions and cash dividends across two accounting cycles Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 5

Q. Qualitative characteristics of financial reporting? Accounting information must possess qualitative characteristics to be useful in decision making. This criterion is hard t

Uses of cash flow statements: The main usefulness of cash flow analysis is that it facilitates the Finance manager to approximation the cash necessities of the firm and match t

what is the BRS

ACCOUNTING STANDARDS An Accounting Standard is a elected set of accounting policies or broad strategies concerning the principles and methods to be elected out of numerous subs


Question 1 Write a short note on the following with example a. Activating budgets b. Reversing journals c. Memorandum vouchers d. Optional vouchers e. Creating Bill of Materials