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Conservatism in Accounting: Definition & Principle

Instructions:

Choose an answer and hit 'next'. You will receive your score and answers at the end.

question 1 of 3

The conservatism principle means that an accountant:

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1. The conservatism principle tends to make the company's _____ more useful for management, stockholders and creditors.

2. If one method of measuring a company's income calculates an income of $10 million, and another calculates an income of $12 million, the conservatism principle says that the accountant should:

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About This Quiz & Worksheet

This quiz and corresponding worksheet will help you gauge your understanding of what conservatism means within accounting. Topics you'll need to know to pass the quiz include a full understanding of the conservatism principle and its benefits.

Quiz & Worksheet Goals

Use these assessment tools to assess your knowledge of:

  • The defining characteristics of the conservatism principle
  • For whom the conservatism principle makes the company's financial statements more useful
  • Applying the conservatism principle in given scenarios
  • Whether conservatism helps prevent an accountant from taking out loans that he or she can't repay
  • The benefit the conservatism principle plays in regards to legal liability

Skills Practiced

This worksheet and quiz will let you practice the following skills:

  • Defining key concepts - ensure that you can accurately define main phrases, such as conservatism and legal liability
  • Reading comprehension - ensure that you draw the most important information from the related lesson on conservatism in accounting
  • Interpreting information - verify that you can read information regarding how conservatism helps accountants and interpret it correctly
  • Knowledge application - use your knowledge to answer questions about how the conservatism principle increases the usefulness of financial statements

Additional Learning

To learn more about the importance of adhering to the principle of conservatism in accounting, review the corresponding lesson on Conservatism in Accounting. This lesson covers the following objectives:

  • Review what the conservatism principle holds, as defined by the Financial Accounting Standards Board
  • Understand the reasons behind the conservatism principle
  • Explore how the conservatism principle protects both the company and the accountant from legal liability
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