The financial statements of a firm that uses more conservative accounting practices would be likely to report:
A) Higher profitability.
B) Higher dividends.
C) Higher liabilities.
D) Higher stockholders’ equity.

Question

The financial statements of a firm that uses more conservative accounting practices would be likely to report:
A)	Higher profitability.
B)	Higher dividends.
C)	Higher liabilities.
D)	Higher stockholders’ equity.

Quizplus · Accepted Answer

Firms that use more conservative accounting practices tend to recognize and report lower profits and higher liabilities. This approach is more cautious and recognizes potential risks and uncertainties, which may end up reducing the firm's reported earnings. Therefore, the correct answer is C, as firms that use conservative accounting practices tend to report higher liabilities on their financial statements.

The Financial Statements of a Firm That Uses More Conservative