The conservatism constraint prescribes that:
A) All items of a material nature are included in financial statements.
B) When multiple estimates of amounts to be received or paid in the future are equally likely, then the least optimistic amount should be used.
C) A company use the same accounting methods period after period.
D) Revenues and expenses are reported in the period in which they are earned or incurred.
E) All inventory items are reported at full cost.

Question

Quizplus · Accepted Answer

The conservatism constraint advises that when there are multiple equally likely estimates, the least optimistic estimate should be used to avoid overstating assets or income.

The Conservatism Constraint Prescribes That