3
Question
"Make sufficient provisions for future losses, but do not anticipate future profits." This statement is in accordance to the concept of _________.
"Make sufficient provisions for future losses, but do not anticipate future profits." This statement is in accordance to the concept of _________.
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Solution
The correct option is B Conservatism
The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.
The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.
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