The accounting convention which states that profit must not be recognized until realized while all losses should be adequately provided for it termed

Answer Details

The accounting convention being referred to is conservatism. Conservatism is the principle of being cautious in the recognition of profits and assets and the overstatement of liabilities and losses. It means that accounting should err on the side of caution when there is uncertainty or ambiguity in the measurement of financial data. Under conservatism, all potential losses should be recognized in a timely manner, while potential profits should only be recognized when they are realized. This means that if there is a possibility that a company will experience a loss, they should make adequate provisions for it, even if the loss has not yet been realized. On the other hand, potential profits should only be recognized when there is certainty that they will be realized. This principle helps ensure that financial statements provide a realistic view of a company's financial position and performance. It also helps to prevent companies from overstating their profits and understating their losses, which could mislead investors and other stakeholders.