Application of the (prudence) conservatism assumption can produce:
A) higher amounts for liabilities.
B) higher profits.
C) lower amounts for expenses.
D) higher values for assets.

Question

Quizplus · Accepted Answer

The prudence conservatism assumption suggests that financial statements should err on the side of caution and provide for all possible losses and contingencies. This can result in higher amounts for liabilities and lower values for assets, as the assumption requires that companies account for potential losses, even if they are not certain to occur. It may also result in lower profits, as expenses and losses are recognized immediately, while gains are only recognized when they are certain.

Application of the (Prudence) Conservatism Assumption Can Produce