In matters of doubt and great uncertainty, accounting issues should be resolved by choosing the alternative that has the least favorable effect on net income, assets, and owners' equity. This guidance comes from
A) the cost constraint.
B) the industry practices constraint.
C) prudence or conservatism.
D) the full disclosure principle.

Question

Quizplus · Accepted Answer

The principle of prudence, also known as conservatism, directs accountants to choose an alternative in situations characterized by uncertainty that has the least favorable effect on net income, assets, and owners' equity. This is done to prevent overstating financial results and to ensure that any potential losses or liabilities are immediately recognized in the financial statements. The cost constraint refers to the idea that the cost of providing information should not exceed its benefits, the industry practices constraint refers to the idea that accounting methods should be consistent with those used by other companies in the same industry, and the full disclosure principle requires that all relevant information be included in the financial statements. However, none of these principles address how to resolve accounting issues in situations of uncertainty.

In Matters of Doubt and Great Uncertainty, Accounting Issues Should