Which of the Following Best Illustrates the Accounting Concept of Conservatism

question 53

Multiple Choice

Which of the following best illustrates the accounting concept of conservatism?

• A)Use of the allowance method to recognize bad debt losses from credit sales
• B)Use of the lower of cost or NRV approach in valuing inventories
• C)Use of the same accounting method from one period to the next in calculating amortization expense
• D)Utilization of a policy of deliberate understatement of asset values in order to present a conservative net income figure

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Definitions:

Operations

The day-to-day activities involved in the running of a business, organization, or system, focusing on efficient and effective production and distribution.

Component

An individual part or element of a larger system, machine, or product.

Expected Value

A calculated average of all possible values for a given probability distribution, reflecting the anticipated outcome of a random variable.

Decision Tree

A graphical representation that helps in making decisions by laying out options and their possible outcomes or implications.