Define Convention Of Conservation In Accounting?


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Rosie Normanton Profile
Rosie Normanton answered
It can be assumed that by 'conservation', you mean 'conservatism', which is a popular concept in the field of accounting. Conservatism means to expect all realistic potential losses and provide for them in such a way that they won't affect the functioning of an organization or project that must be financially catered for. Any potential gains are not considered in calculations, which means if they do come up, they act as extra bonuses. This slightly pessimistic approach to accounting can actually work out to be surprisingly positive, as in the majority of cases things will work out better than expected. Even if circumstances do take a turn for the worst, they are fully planned for.
  • The benefits of producing a budget
There are many benefits associated with producing a budget - particularly one based on the convention of conservatism. Creating a budget will allow you to effectively plan your spending, and you can ensure you will never be short of money because you have planned ahead. You could even avoid unnecessary bank charges as well as missing out on fun activities because you can't afford them. Realistically, producing a budget is the best way in which to ensure your cash lasts until your next payday.
  • Budgeting to save up

If you are looking to save up for something - such as a holiday, wedding or new car - you could produce a specialist budget based on conservatism, which will allow even those with very little extra cash to save effectively. You should use the convention of conservatism to create your budget. Then, any extra cash you gain when circumstances take a turn for the better can be put into your savings account, and it won't even feel like you have lost out.

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