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The conservatism principle in accounting dictates that uncertainties and potential losses should be recognized as soon as they are discovered, while gains should only be recorded when they are realized. This approach ensures that financial statements are not overly optimistic, providing a more cautious and reliable view of a company’s financial health.
Accounting principles are the standardized guidelines and rules that organizations follow to ensure their financial statements are consistent, reliable, and comparable across different periods and entities. These principles form the foundation of accounting practices, ensuring transparency and integrity in financial reporting.
The 'Lower of Cost or Market' (LCM) rule is a conservative accounting principle requiring inventory to be recorded at the lower of its historical cost or current market value to prevent overstatement of assets. This ensures that financial statements reflect a more accurate and prudent valuation of inventory, safeguarding against potential losses from market declines.
GAAP, or Generally Accepted Accounting Principles, are a set of accounting standards and procedures used in the United States to ensure consistency, reliability, and comparability of financial statements. These principles are essential for investors, regulators, and other stakeholders to make informed decisions based on transparent and standardized financial information.
Concept
GAAP, or Generally Accepted Accounting Principles, is a set of standardized guidelines and procedures for financial accounting and reporting in the United States. It ensures consistency, transparency, and comparability of financial statements, which is crucial for investors, regulators, and other stakeholders in making informed decisions.
The cost principle is an accounting guideline that states assets should be recorded at their original purchase price, rather than their current market value. This principle ensures consistency and reliability in financial reporting but may not always reflect the true economic value of an asset over time.
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