Accounting Conservatism


DEFINITION of 'Accounting Conservatism'

A branch of accounting that requires a high degree of verification before making a legal claim to any profit. Accounting conservatism will recognize all probable losses as they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified. Having strict revenue-recognition criteria is one of the most common forms of accounting conservatism.


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BREAKING DOWN 'Accounting Conservatism'

Generally speaking, there are many accounting practices that are deemed conservative. For example, overestimating an allowance for doubtful accounts can give a more accurate picture of recoverable receivables given a specific economic outlook. This overestimate may lower earnings for a certain period, but it may be more accurate than if the original amount were used.

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  2. Allowance For Doubtful Accounts

    A contra-asset account that records the portion of a company's ...
  3. Savings Account

    A deposit account held at a bank or other financial institution ...
  4. Accounting

    The systematic and comprehensive recording of financial transactions ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Liability

    A company's legal debts or obligations that arise during the ...
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