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

Question

Quizplus · Accepted Answer

The conservatism (prudence) convention calls for financial reports to err on the side of caution by recognizing losses earlier than gains and disclosing all relevant information that may impact the company's financial position. This convention ensures that financial statements provide a realistic view of the company's financial health and reduce the risk of overestimating profits. The other options are different accounting conventions - accounting period calls for dividing the financial year into smaller periods, stable monetary unit convention requires the use of a stable monetary unit to measure transactions, and objectivity convention requires that financial data are free from personal bias.

The Accounting Convention That Calls for Financial Reports to Err