When Preparing the Financial Statements, the Accountant Must Estimate the Balances

question 151

Short Answer

When preparing the financial statements, the accountant must estimate the balances of certain accounts. When two possible estimates are available and when these estimates are about equally likely, the accountant's prudent reaction is to select the least optimistic estimate in terms of the recorded amounts of assets or income statement accounts. This is referred to as the principle of ____________________.

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Definitions:

Valid

In logic, referring to an argument or inference that follows correct form and where the truth of the premises guarantees the truth of the conclusion.

Inductive

A reasoning method where specific observations or instances are used to form general conclusions or theories.

Analogy

An examination of two entities to delineate their differences or emphasize their similarities, aimed at providing a clearer understanding.

Peanuts

Edible legumes or seeds enclosed in a hard shell, often consumed as a snack, used in cooking, or processed for oil.