Multiple choice

Based on __________, stock is valued at cost or market value, whichever is less.

  1. entity concept

  2. money measurement concept

  3. accrual concept

  4. conservatism concept

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The conservatism (or prudence) concept states that potential losses should be recognized immediately, but potential gains should not be anticipated. Valuing stock at the lower of cost or market value embodies this principle - if market value falls below cost, the loss is recognized immediately, but if market value rises above cost, the gain is not recognized until sold.