CBSE Class 11-commerce Answered

The principle of conservatism is “anticipate no profit and provide for all possible losses”. Conservatism concept takes into consideration all prospective losses but leaves all prospective profits. It provides the true picture of the financial performance.

For example, valuing closing stock (at cost or market value, whichever is less), creating provision for discount on debtors and writing off intangible assets from the books of accounts.