Ram borrowed Rs. 10,000 from a firm. However, he fails to pay back and defaults. The firm should ensure that this loss is recorded in the books.

Which concept is illustrated in this example?

Full Disclosure

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Matching

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Money Measurement

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Conservatism

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Open in App

Solution

The correct option is D
Conservatism

Conservatism concept is based on the aspects:

1.Record all expected losses and ignore all expected gains

2.When there is more than one option to record a transaction, pick the option which has the least favorable impact on profit

Here, recording Ram's loss is covered by Conservatism concept.

Suggest Corrections

Similar questions

Q. If a firm believes that some of its debtors may default, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the______concept.

Complete the following work sheet:

(i)	If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.
(ii)	The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.
(iii)	Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.
(iv)	The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.
(v)	A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.
(vi)	If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.
(vii)	The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept.

Complete the following worksheet

(i) If a firm believes that some of its debtors may default, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___ concept.

(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the ___ concept.

(iii) Everything a firm owns, it also owns out to somebody. This coincidence is explained by the ___ concept.

(iv) The ___ concept states that if the straight-line method of depreciation is used in one year, then it should also be used in the next year.

(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of ___

(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to ___

(vii) The management of a firm is remarkably incompetent, but the firm's accountants cannot take this into account while preparing the book of accounts because of ___ concept.

A loan of Rs. 1,00,000 was taken from a friend Ram, but instead it was recorded as Rs. 10,000 in the books. To rectify this mistake which of the following is correct?

Last year Ram had borrowed a sum of Rs 20,000 from his friend Mr. Ravi which is still not paid by Ram. Now, Ram has purchased goods from Ravi worth Rs 10,000 for which he has promised to pay him next week. What will be the value of debtors in the books of Ravi, if there are debtors of Rs 50,000 already in the books?

Join BYJU'S Learning Program

Ram borrowed Rs. 10,000 from a firm. However, he fails to pay back and defaults. The firm should ensure that this loss is recorded in the books. Which concept is illustrated in this example?

Ram borrowed Rs. 10,000 from a firm. However, he fails to pay back and defaults. The firm should ensure that this loss is recorded in the books.

Which concept is illustrated in this example?