Conservatism means:
A)not underestimating asset values.
B)not overestimating liabilities.
C)using the least optimistic measurement when faced with uncertainty about the reported amounts of assets and liabilities.
D)always recording an asset at the amount it originally cost.

Question

Quizplus · Accepted Answer

Conservatism in accounting refers to using the least optimistic measurement when faced with uncertainty about the reported amounts of assets and liabilities. This means that when there are different measures available for an asset or liability, the one that reflects lower value should be recorded to avoid overstatement of financial position. Option A is incorrect as conservatism does not mean not underestimating asset values but rather choosing a more conservative measure when there is uncertainty. Option B is incorrect as conservatism is not just about liabilities but applies to both assets and liabilities. Option D is incorrect as assets can be revalued based on their current market value and not just their original cost.

Conservatism Means