Convention of conservatism
Encyclopedia
In business
, investment
, and accounting, the principle or convention of conservatism has at least two meanings.
In investment and finance, it is a strategy which aims at long-term capital appreciation with low risk. It can be characterized as moderate or cautious and is the opposite of aggressive behavior.
In accounting, it states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be selected.
According to this concept "expected losses are losses but expected gains are not gains".
On the basis of this concept closing stock is valued at cost price or market price, whichever is lower.
Provision for bad and doubtful debts are maintained.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
, and accounting, the principle or convention of conservatism has at least two meanings.
In investment and finance, it is a strategy which aims at long-term capital appreciation with low risk. It can be characterized as moderate or cautious and is the opposite of aggressive behavior.
In accounting, it states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be selected.
According to this concept "expected losses are losses but expected gains are not gains".
On the basis of this concept closing stock is valued at cost price or market price, whichever is lower.
Provision for bad and doubtful debts are maintained.
See also
- Generally Accepted Accounting PrinciplesGenerally Accepted Accounting PrinciplesGenerally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
(GAAP) - U.S. GAAPGenerally Accepted Accounting Principles (USA)In the U.S., Generally Accepted Accounting Principles are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately held companies, non-profit organizations, and governments. The term is usually confined to the...
- International Financial Reporting StandardsInternational Financial Reporting StandardsInternational Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
(IFRS)