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Can any one explain the exact concept of conservatism and realisation it's some what tough to understand
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The idea of conservatism suggests that you, as a business, should anticipate and record future losses rather than future gains. The principle of conservatism in accounting gives guidance when recording cases of uncertainty or estimates. In other words, you should always lean towards the most conservative side of any transaction. The conservatism principle is one of the main accounting principles and guidelines listed under UK GAAP. GAAP is a regulatory body of principles and standards that all accountants should follow when reporting the financial activity of a business. Hence, for stakeholders interested in the financial data of a company, the conservatism principle ensures that the financial statements and information of that business is not overestimated or misleading. The conservatism principle explained: In situations where uncertainty exists and there is doubt between two reasonable alternatives for recording an item, according to the conservatism principle your accountant should always choose the a less favourable outcome. This could mean minimising profits by recording estimated expenses or losses, and not recording the estimated gains or revenues. If there is uncertainty about a loss or potential loss - then you should record it. If there is uncertainty about a gain or potential gain - then you should not record it. And of course, if there is certainty about a gain - then you should record it.
Conservatism is basically being prudent. Recognising all anticipated losses. Realisation concept is more linked to accrual concept of accounting. You will not study these in depth again. We hardly use these concepts in real life. Most widely used concepts are Accrual, Matching, Prudence, Going Concern, Consistency.
CA Suraj Lakhotia Admin
Conservatism is basically being prudent. Recognising all anticipated losses. Realisation concept is more linked to accrual concept of accounting. You will not study these in depth again. We hardly use these concepts in real life. Most widely used concepts are Accrual, Matching, Prudence, Going Concern, Consistency.
Sir is this correct concept for conservatism recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received.
CA Suraj Lakhotia Admin
Conservatism is basically being prudent. Recognising all anticipated losses. Realisation concept is more linked to accrual concept of accounting. You will not study these in depth again. We hardly use these concepts in real life. Most widely used concepts are Accrual, Matching, Prudence, Going Concern, Consistency.
Sir but realization concept is for revenue basis Or revenue as well expenses And accrual concept has both revenue and expenses
Thread Starter
sai tSir but realization concept is for revenue basis Or revenue as well expenses And accrual concept has both revenue and expenses
Realisation is more from revenue stand point.