Advanced Financial Accounting
Conservatism in accounting refers to the principle that recognizes expenses and liabilities as soon as possible but only recognizes revenues and assets when they are assured of being received. This principle aims to avoid overstatement of financial health by favoring a cautious approach to reporting. This tendency ensures that companies do not present an overly optimistic view of their financial position, which is crucial for maintaining earnings quality and identifying potential red flags in financial reporting.
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