Question

What is the general principle of conservatism in accounting?

A Recognize revenue when earned; recognize expenses when incurred Correct Answer Incorrect Answer
B Report assets at their current market value. Correct Answer Incorrect Answer
C Report liabilities at their worst-case scenario value. Correct Answer Incorrect Answer
D Err on the side of caution by recognizing potential losses before potential gains. Correct Answer Incorrect Answer

Solution

The general principle of conservatism in accounting is also known as the principle of prudence. It requires accountants to be cautious and avoid overstating assets and income, while recognizing potential losses and liabilities.

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