Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

Financial Accounting

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

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Multiple Choice

Which of the following best illustrates the application of conservatism in accounting?

Overstating assets to improve the appearance of the balance sheet

Recording inventory at the lower of cost or net realizable value

Recognizing anticipated gains from the sale of inventory before the sale occurs

Delaying the recognition of expenses until cash is paid

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Verified step by step guidance

Understand the concept of conservatism in accounting: Conservatism is a principle that guides accountants to choose the solution that results in lower profits or asset values when faced with uncertainty. This ensures that financial statements are not overly optimistic and reflect a cautious approach.

Analyze the options provided in the problem: Each option represents a different accounting practice. Conservatism emphasizes avoiding overstatement of assets or income and recognizing losses or expenses promptly.

Evaluate the first option: 'Overstating assets to improve the appearance of the balance sheet' contradicts the conservatism principle, as it inflates asset values and does not reflect caution.

Evaluate the second option: 'Recording inventory at the lower of cost or net realizable value' aligns with conservatism. This practice ensures that inventory is not overstated and reflects the lower value between its cost and the amount it can be sold for (net realizable value).

Evaluate the remaining options: 'Recognizing anticipated gains from the sale of inventory before the sale occurs' violates conservatism by prematurely recording income, and 'Delaying the recognition of expenses until cash is paid' defers expenses, which is not conservative. Therefore, the second option best illustrates the application of conservatism.