According to the principle of conservatism,when faced with uncertainty about the value of an item,a company should use the measure that avoids:
A)overstating assets and liabilities.
B)overstating assets and understating liabilities.
C)understating assets and overstating liabilities.
D)understating assets and liabilities.

Question

Quizplus · Accepted Answer

According to the principle of conservatism, when faced with uncertainty, a company should use the measure that avoids overstating assets and understating liabilities. This approach is known as "lower of cost or market" (LCM) method, which means that inventory must be recorded at the lower of its actual cost or current market value. This approach helps to ensure that assets are not overstated, and liabilities are not understated, which is essential for the accuracy of the financial statements.

According to the Principle of Conservatism,when Faced with Uncertainty About