Aggressive accounting and conservative accounting both are the practice for using the method of accounting. With this, financial performance will change and it is less change to understand the differences due to these practices. Only expert can analyze this. For understanding the effect of these on financial performance, you should understand the differences between aggressive accounting and conservative accounting.
- Meaning
Aggressive Accounting
Aggressive accounting is the practice in which financial performance is overstated than actual. In this practice, accountant or business person tries to show more return on the investment. Main reason is to get more investment or satisfy existing investors for some time.
Conservative Accounting
Conservative accounting is the practice in which financial performance is understated than actual. In this practice, accountant or business person tries to cover all risks which cannot see or calculate in normal calculation.
- Example
Aggressive Accounting
For example, to change the method of depreciation for showing less depreciation expenses and more profit. Due to this, financial performance will be overstated. So, this practice will be aggressive accounting.
Conservative Accounting
For example, to change the method of evaluation of inventory for showing more cost of closing stock. Due to this, our financial performance will show less than actual.
- Wrong or Correct
Aggressive Accounting
Aggressive accounting is always wrong practice because it will decrease the goodwill of company in the minds of investors. All investors want correct information of financial performance of company.
Conservative Accounting
Conservative accounting will be correct practice if it is under conservative conceptand assumption. As per this assumption, business should make the provision of all the loss. But if it is not under accounting assumption and principle, it may be also wrong practice because it will not also provide correct information of financial performance.
No comments:
Post a Comment