ECONOMICS

Detailed explanation-1: -Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.

Detailed explanation-2: -The prudence concept refers to a crucial principle used in accounting to ensure that income and assets are not overstated in financial statements. Alternatively known as the conservatism principle, it also makes sure that liabilities are not understated and provisions are made for income and losses.

Detailed explanation-3: -In accounting theory and practice, prudence has traditionally been defined as the principle of recognizing expenses immediately (i.e., not overstating assets) and not recognizing income until it is reasonably certain (i.e., deferring revenue recognition).

Detailed explanation-4: -The conservatism concept is a concept in accounting which refers to the idea that expenses and liabilities should be recognised as soon as possible in a situation where there is uncertainty about the possible outcome and in contrast record assets and revenues only when they are assured to be received.

Detailed explanation-5: -In brief, ‘conservatism’ refers in this paper to any method of accounting that leads to book value being less than economic value, while ‘prudence’ is a specific type of conservatism arising from a ‘cautious’ response to uncertainty.