The conservatism principle requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely,then the less optimistic amount is used.

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The conservatism principle, also known as the prudence principle, recommends choosing the less optimistic estimate of future amounts when more than one estimate exists and they are equally likely. This approach helps to avoid overstating assets or income and understating liabilities or expenses, which could result in misleading financial statements.

The Conservatism Principle Requires That When More Than One Estimate