Under the conservatism rule, assets and income would be understated, rather than overstated.

Question

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The conservatism rule dictates that when there are multiple options for valuing an asset or recognizing income, the option that results in the least favorable financial position for the company should be chosen. This ensures that financial statements are not overstated with optimistic projections. Therefore, assets and income are more likely to be understated rather than overstated under the conservatism rule.

Under the Conservatism Rule, Assets and Income Would Be Understated