Conservatism Principle
Definition
The accounting convention of recognising expenses and liabilities as soon as they are probable, but recognising revenues and gains only when reasonably certain. It avoids overstating the financial position.
Related Terms in Accounting Principles
Consistency Principle
The convention that a business applies the same accounting methods from period to period, so results are comparable over time. Changes are allowed but must be disclosed and justified.
Historical Cost Principle
The convention that assets are recorded at their original purchase cost rather than current market value. It gives a verifiable, objective basis for the accounts, though it can understate the current worth of long-held assets.
Revenue Recognition Principle
The rule that revenue is recorded when it is earned and realisable — when control of goods or services passes to the customer — regardless of when payment is received. Modern standards set a structured model for applying it.
Full Disclosure Principle
The convention that financial statements, including the notes, must reveal all information that could influence a reader's understanding or decisions. It underpins the detailed disclosures accompanying the primary statements.
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