________ convention underlines the prudence of understating rather than over-stating the net income of an entity for a period and the net assets as on a particular date.
Conservatism
The correct answer is option 4. The Conservatism convention underlines the principle of being cautious in accounting, particularly in recognizing revenues and gains. It ensures that potential losses are recognized as soon as they are known, while revenues and gains are only recognized when they are certain. This avoids overstating the financial position of the company. The other options (materiality, historical cost, and consistency) do not emphasize the same cautious approach.
Important Questions from Basic accounting principles
The generally acceptable accounting principles (GAAP) fulfill the conditions of
(i) Relevance
(ii) Objectivity
(iii) Feasibility
A firm purchases a piece of land after making full payment to the seller. However, the legal formalities are yet to be completed. According to which principle does the firm record the transaction in its books of accounts though the legal formalities are NOT completed?
Which of the given options best describes the truthfulness of the following statements?
Statement-1: Generally Accepted Accounting Principles (GAAP) is to be followed by companies so that investors have an optimum level of consistency in the financial statements they use when analyzing companies for investment purposes.
Statement-2: Generally Accepted Accounting Principles (GAAP) cover aspects like revenue recognition, balance sheet item classification and outstanding share measurements.
______ convention proposes that while accounting for various transactions, only those which may have significant effect on profitability or financial status of the business should have special consideration for reporting.
Which of the following is regarded as an accounting convention and NOT as an accounting concept?
