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Conservatism (prudence)

According to kohler “Conservatism is a guidelines which chooses between acceptable accounting alternatives for recording events and transaction so that the least favorable immediate effect on assets, income and owner's equity is reported”.

Conservatism is a policy of 'playing safe'. Conservatism principles results in understatement of assets and overstatement of liable which may result in secret reserves. For e.g. The stock are valued at Cost or Market price whichever is lower.

It taken into consideration all Expected losses but leave all expected Profits.

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