When in doubt, financial statements should:
A)understate assets, overstate liabilities, delay the recognition of gains, and accelerate the recognition of losses.
B)understate assets and liabilities and delay the recognition of gains and losses.
C)understate assets, overstate liabilities, and delay the recognition of gains and losses.
D)overstate assets and understate liabilities.

Question

Quizplus · Accepted Answer

This principle is known as conservatism in accounting. It advises that when there's uncertainty, accountants should err on the side of caution by understating assets and overstating liabilities, which can help prevent the overstatement of the company's financial position. Delaying the recognition of gains and accelerating the recognition of losses also align with this conservative approach.

When in Doubt, Financial Statements Should