Question

The conservatism principle is best reflected in accounting when: a. unpaid payroll costs are accrued at...

The conservatism principle is best reflected in accounting when:

a. unpaid payroll costs are accrued at the end of an accounting period.

b. equipment is depreciated.

c. purchases are recorded at cost.

d. certain current assets (e.g., inventory) are reduced to their market values when market is lower than cost.

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Answer #1

Answer:

Option d: certain current assets (e.g., inventory) are reduced to their market values when market is lower than cost.

Explanation:

Conservatism states that we shoulod record the expected losses and ignore expected gains. Inventory valued lower than its cost is a reflection of conservatism principle.

When unpaid payroll costs are accrued at the end, it is the reflection of accrual concept.

When equipment is depreciated, it is a concept of going concern.

When purchases are recorded at cost, it is a cost concept.

Hence, option 'd' is correct, and rest all are incorrect.

In case of any doubt or clarification, feel free to come back via comments.

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