ALL ABOUT ACCOUNTING :- 8th BLOG

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A.              *****ACCOUNTING*****

Hi freinds 🙏.,
           Today's discuss 3rd accounting principles...

 So let's discuss...

 3. CONSERVATISM :- 
Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.
Conservatism principle is the accounting principle that concern about the reliability of Financial Statements of an entity. ... For example, without using this concept, the accountant could manipulate the accounting records where those transactions are not reliable. Then, the financial statements result unreliable.

  ★ Importance of conservatism in accounting :- 
In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. ... Conservatism plays an important role in a number of accounting rules, including the allowance for doubtful debts and the lower of cost or market rule.

 ★ How do you measure conservatism in accounting :- 
Various methods are used to measure accounting conservatism, which include balance sheet measures, income statement measures and earnings/stock return relation measures.

 ★ History of conservatism in accounting :- 
Watts and Zimmerman (1986) refer to conservatism as the rule that accountants should report the lowest value among the possible alternative values for assets and the highest alternative value for liabilities. Further, revenue should be recognised later than sooner, and expenses, sooner than later.

★ Benefits to use conservatism principle in accounting :- 
In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. This policy tends to understate rather than overstate net assets and net income, and therefore lead companies to "play safe".

★ The principle of Conservatism is one of the major accounting principles and guidelines listed under UK GAAP, which is a regulatory body of principles and standards of accounting that all accountants across the globe need to follow while reporting financial activity of the business. The principle of Conservatism is mostly concerned with the reliability of the financial statements of a business entity.



Gains under conservatism principle.

Losses under conservatism principle.

 ★Remaining 10 principles discuss in 9th blog..★
                                     ★So wait my 9th blog.....★
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