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General Accounting Discussions: Homework question

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    • CommentAuthoramber80227
    • CommentTimeSep 20th 2007
     
    I have this question on my homework that I am not finding the answer for in my book and I don't understand it well enough to know where to look for the answer, can someone please help me?

    My homework question is: The basic accounting concept that refers to the tnedency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the a) conservatism constraint, b) materiality constraint, c) substance over form principle, or d) industry practives constrait? I chose b) materiality constraint but I am not confident about this for the above reasons.

    Thank you in advance for your help! :)
    Thankful People: impala
    • CommentAuthorabril
    • CommentTimeSep 27th 2007
     
    my answer is letter A.

    when "uncertainties" happen, you have atleast 2 alternatives to choose from.. whichever of these alternatives have the least effect on Equity is the one to be used - that is the concept of conservatism principle.. so, according to the question, accountants resolve uncertainties by applying conservatism principle which is actually, understating assets and overstating liabilities. understating assets understates equity and overstating liabilities understates Equity..

    if you find my explanation a bit confusing, try to put numerical symbol on asset-equity relationship so you can see clearly its effect on the capital account.

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