Question

Discuss about the conservatism concept of accounting.

Answer 1

The conservatism principle is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but only recognize revenues and assets when they are assured of being received. It requires that profits should not be recorded until realized but all losses, even those which may have a remote possibility, are to be provided for in the books of account. This approach of providing for the losses but not recognizing the gains until realized is called the conservatism approach.