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Accounting
Conservatism Principle
When in doubt, accountants should choose the method that results in lower assets or higher liabilities.
The conservatism principle protects users from overly optimistic reporting. It does not mean deliberately understating everything — only that caution is used when estimates are needed.
It's the 'better to under-promise and over-deliver' rule for accountants.
Real world: When valuing inventory that might be obsolete, conservatism says use the lower value. When estimating a lawsuit loss, record the higher possible loss. This avoids overstating how healthy the company is.
💡 Conservatism keeps financial statements from painting too rosy a picture.