What is meant by conservatism in accountancy?

he conservatism principle is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Thus, when given a choice between several outcomes where the probabilities of occurrence are equally likely, you should recognize that transaction resulting in the lower amount of profit, or at least the deferral of a profit. Similarly, if a choice of outcomes with similar probabilities of occurrence will impact the value of an asset, recognize the transaction resulting in a lower recorded asset valuation.

Accounting conservatism is a financial approach many companies use to limit the amount of risk in their accounting information. This cautious method anticipates lower profits along with higher losses. Companies may use this approach to avoid misleading internal or external business stakeholders regarding the company's financial health. It helps an accountant decide between two alternatives.

A branch of accounting that requires a high degree of verification before making a legal claim to any profit. Accounting conservatism will recognize all probable losses as they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified. Having strict revenue-recognition criteria is one of the most common forms of accounting conservatism.

Generally speaking, there are many accounting practices that are deemed conservative. For example, overestimating an allowance for doubtful accounts can give a more accurate picture of recoverable receivables given a specific economic outlook. This overestimate may lower earnings for a certain period, but it may be more accurate than if the original amount were used.

A state of uncertainety in accouing transaction in which a doubt exisit betwwen two possible alternatives, in such cases accountant should chose those alternative which is against the assest(means less profit) he/she should not chose those which show higher value of assest or profit.In other words he/she should be conservative and avoid to manuplate.