Accounting Conservatism and what it taught me

ACCOUNTING is something where fiction is only for the simulation of recording transactions and doing other tasks related to Accounting.

In the real world, it is a discipline, which means it should be taken seriously. With accounting being a discipline, it requires the habit of tactfulness and having attention to detail. Sticking with the truth is also important.

The Accounting Principle of Conservatism, just like the discipline called Accounting, requires tact, attention to detail, and, most importantly, sticking with the truth.

Accounting Conservatism requires people who record the receiving revenue to be more cautious when recording said transactions. Revenue must be confirmed first or deferred if it is not yet confirmed.

On the other hand, when recording losses, it should be considered as a loss immediately. Losses should be acknowledged as they are incurred.

However, if the losses are very likely and if there are contingent liabilities, these should be disclosed in the notes to the financial statements.

When it comes to allowances to possible liabilities and losses, it should be slightly higher than expected because you would know when a lawsuit, a fire, a major natural disaster, bigtime kind of stealing, and getting a customer saying that he would pay for something when he or she did not do so on the time that was agreed on (which would cause a doubtful account or a bad debt) would happen.

I learned through conservatism that we should not count the number of chicks before they hatch when it comes to recording revenues and to acknowledge any real and possible expenses related to the operations of the entity that would be incurred even if it is not included in the plan when it comes to expenses in order to have extra cash when the need to spend for unexpected expenses arise just like how people should expect the usually unexpected scenarios that could happen whenever they are planning to do something so they can come up with the plan that helps them deal with the unexpected scenario. These things are applicable not only at work, but also in my life outside the workplace.

Furthermore, considering how things go when it comes to conservatism, there should be monitoring of the progress of these transactions so the understatement of income and overstatement of expenses are still within the bounds of conservatism./