[amp_mcq option1=”results in higher profits and lower liabilities” option2=”requires the accountant not to anticipate profits, but to provide for all possible losses” option3=”required the managers always to match effort to accomplishment” option4=”does not allow any deviation from the policies or practices followed in the past” correct=”option2″]
The correct answer is: B. requires the accountant not to anticipate profits, but to provide for all possible losses.
Conservatism is a principle of accounting that requires accountants to be cautious in their estimates and to err on the side of caution when there is uncertainty. This means that accountants should not anticipate profits, but should instead provide for all possible losses. This can lead to lower profits being reported in the financial statements, but it helps to ensure that the financial statements are accurate and reliable.
Option A is incorrect because conservatism does not necessarily result in higher profits. In fact, it can sometimes lead to lower profits being reported.
Option C is incorrect because conservatism does not require managers to always match effort to accomplishment. This is a principle of management, not accounting.
Option D is incorrect because conservatism does not allow any deviation from the policies or practices followed in the past. This is a principle of auditing, not accounting.