Financial Statement Analysis
An economic downturn refers to a period of reduced economic activity characterized by declining GDP, falling incomes, rising unemployment, and decreased consumer spending. During such times, businesses often face challenges such as lower sales and reduced profits, which can lead to layoffs and further exacerbate the downturn. This phenomenon influences financial reporting and the application of conservatism in accounting practices, as companies may adopt more cautious measures to reflect their financial position accurately during uncertain times.
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