A key accounting concept that is to not anticipate profits and to prepare or anticipate all losses.
Accountants help businesses and entrepreneurs minimize their chances of maximum losses, which are achieved by underestimating earnings and profits rather than exaggerating them.
This concept may seem strange, but it is done so that the financial statements do not overstate the financial condition or prosperity of the entity.
The method of conservatism is possibly the most conservative of all accounting concepts. Financial gains are not taken into account until they are realized and the money is in the bank.