15.4.1 - Conservatism (Prudence)
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Practice Questions
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What is the conservatism principle in accounting?
💡 Hint: Think about how we treat losses and profits differently.
Give an example of when a company should create a provision for doubtful debts.
💡 Hint: Consider a situation where credit is extended to customers.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does the conservatism principle direct accountants to do?
💡 Hint: Think about how we treat potential losses versus profits.
True or False: The conservatism principle suggests that revenue should be recognized when it is probable.
💡 Hint: Consider the level of certainty required for revenue recognition.
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Challenge Problems
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Given a financial statement with various accounting entries, identify how conservatism is reflected in the recognition of expenses and liabilities versus revenues. Discuss the implications of your findings.
💡 Hint: Consider whether the company is playing it too safe or not cautious enough.
A growing tech startup is about to release a new app. Discuss how its management should apply the conservatism principle in their financial forecasts amidst uncertain market reactions.
💡 Hint: Think of ways the app's success could be uncertain.
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