The conservatism constraint:
A)Requires that when more than one equally likely estimate of amounts is expected to be received or paid in the future,then the less optimistic amount should be used.
B)Requires that a company use the same accounting methods period after period.
C)Requires that revenues and expenses be reported in the period in which they are earned or incurred.
D)Requires that all items of a material nature be included in financial statements.
E)Requires that all inventory items be reported at full cost.

Question

Quizplus · Accepted Answer

The conservatism constraint, also known as the principle of prudence, requires that when more than one equally likely estimate of amounts is expected to be received or paid in the future, the less optimistic amount should be used. This constraint ensures that financial statements do not overstate the financial position or performance of a company in order to prevent potential misrepresentation or fraudulent activities.

The Conservatism Constraint