The accounting convention that calls for financial reports to err on the side of caution is the:
A) stable monetary unit convention.
B) accounting period convention.
C) prudence (conservatism) convention.
D) objectivity convention.

Question

Quizplus · Accepted Answer

The prudence (conservatism) convention requires that financial reports err on the side of caution, meaning that if there are multiple possible outcomes, the one that results in lower profits or higher expenses should be chosen. This convention helps to prevent overvaluing assets and profits, which could lead to misleading financial statements.

The Accounting Convention That Calls for Financial Reports to Err