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Hi, in this video, we're going to discuss about conservatism principle in accounting.
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So what is this all about? conservatism principle is a concept of accounting under gaap, and it recognizes and records costs and liabilities and expenses, whether they are guaranteed or certain, you record them very quickly.
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You record them right away.
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Two main points.
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Let me write it down for you when there are cost, expenses, or liabilities, whether they are guaranteed, guaranteed or certain, or uncertain, record them right away.
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We try to be conservative in a sense.
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Now, the second point is when you recognize your revenue and assets and if these revenue or assets are guaranteed to be received then you record them okay so if there are assets and revenues let's put it the other way around if they are not guaranteed or they are uncertain do not record these assets and revenues no recording.
02:07
In other words, you only record assets and revenues when they are guaranteed.
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Okay.
02:15
So the goal of conservatism is one of the great principles of accounting and it is listed guidelines under uk gaap, which is the governing body of accounting policies and standards that all accountants worldwide must follow in reporting a business financial transaction.
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Now, this principle is closely related to the liability of the financial statements of a business entity.
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That's why it is very important, i mean, that every company must practice conservatism in their financial statements.
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Now, let me give you on a scenario or an example.
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Let us assume that the company, xyc, xyc company is in the middle of a patent case with abc company...