A.

The 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. Prudence is a key accounting principle
which makes sure that assets and income are not overstated and liabilities and expenses are
not understated. The convention of conservatism, also known as the doctrine of Prudence in
accounting is a policy of anticipating possible future losses but not future gains. This policy
tends to understate rather than overstate net assets and net income, and therefore lead
companies.
B. In financial accounting, a balance sheet or statement of financial position is a summary of the
financial balances of a sole proprietorship, a business partnership, a corporation or other
business organization. Assets, liabilities and ownership are listed as of a specific date, such as
the end of its financial year. A balance sheet is often described as a "snapshot of a
company's financial condition". A standard company balance sheet has three parts:
assets, liabilities, and ownership equity. The main categories of assets are usually listed first,
and typically in order of liquidity. Assets are followed by the liabilities. The difference between
the assets and the liabilities is known as equity or the net assets or the net worth or capital of
the company and according to the accounting equation, net worth must equal assets minus
liabilities. The major differences between Balance Sheet and Fund Flow statement are as below:
Balance sheet Balance sheet is a statement of assets, liabilities and capital. Balance sheet is
prepared to ascertain the financial position of a firm. It is prepared with the help of trial balance.
It provides static view of financial affairs. Fund Flow statement Funds flow statement is a
statement if changes in assets, liabilities and capital accounts. It is prepared to ascertain the
sources and application of funds. It is prepared with the help of balance sheets of two
subsequent dates. It provides the changes in assets, liabilities and capital accounts. The major
items shown in a Balance Sheet are Assets, Liabilities and Equity. These are further divided as
below: Current Assets: Cash and cash equivalents Trade and other receivables Investments
Inventories Assets held for sale Non-Current Assets: Property, plant, and equipment Intangible
assets Goodwill Current Liabilities: Trade and other payables Accrued expenses Current tax
liabilities Current portion of loans payable Other financial liabilities Liabilities held for sale NonCurrent Liabilities: Loans payable Deferred tax liabilities Other non-current liabilities Equity:
Capital stock Additional paid-in capital Retained earnings The items that are shown in Fund
Flow statement are Sources of Funds and Application of Funds. These are further divided as
below: a. Sources of Fund Operating profit Issue of share capital Issue of debentures Long term
loans Sale of non-current assets Non-trading Receipt b. Application of funds Operating loss
Redemption of Preference share capital Redemption of debentures Repayment of long term
loans Purchase of Non-current assets Non-Trading payments (e.g. dividend paid)