• 1 Marks

FA – Nov 2020 – L1 – SA – Q11 – Accounting Concepts

Identifies the accounting convention that suggests using a valuation method that understates rather than overstates results.

Which of the following accounting conventions suggests that accountants should use a method of valuation that understates rather than overstates results?
A. Conservatism
B. Historical
C. Monetary
D. Cost
E. Substance over form

A. Conservatism

Explanation:
The conservatism (or prudence) principle dictates that when there are uncertainties, accountants should choose methods that result in lower profits and asset values to avoid overstating financial performance. This approach ensures that potential losses are recognized as soon as they are foreseeable, while gains are only recognized when they are certain.

Back to all questions

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form