The Conservatism Constraint Requires That When More Than One Estimate

question 49

True/False

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the most optimistic amount is used.

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Definitions:

Real Account

a permanent account in the general ledger that tracks the value of a company's property, plant, equipment, and other non-current assets over time.

Permanent Account

A permanent account is an account that is not closed at the end of the accounting period and carries its balance over into the next period, such as assets, liabilities, and equity accounts.

Closing Entries

Entries recorded at the close of an accounting period for the purpose of moving balances from temporary to permanent accounts.

Capital Account

An account showing the net worth of a business at a specific point in time, including assets contributed by owners and profits.