Constraint 1: Estimates and Judgments

Certain measurements cannot be performed completely accurately, and must therefore utilize conservative estimates and judgments. For example, a company cannot fully predict the amount of money it will not collect from its customers, who having purchased goods from it on credit, ultimately decide not to pay. Instead, a company must make a conservative estimate based on its past experience with bad customers.

Get Crash Course in Accounting and Financial Statement Analysis, Second Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.