Which accounting convention advises that when in doubt, accountants should choose methods that understate assets and revenues rather than overstate them?

Explanation

• The Conservatism (or Prudence) Principle states that potential losses should be recognized immediately, while potential gains are recognized only when realized.
• This principle ensures that financial statements do not overstate assets, revenues, or net income.
• Recording inventory at lower of cost or net realizable value is a classic application of conservatism.