Concept:The prudence convention requires that assets are not overstated, so stock is valued at the lower of cost and net realizable value.
Explanation:When net realizable value falls below cost, stock is written down to that lower value under the prudence convention.
This prevents the business from overstating closing stock and, therefore, overstating profit.
Prudence requires that all probable losses are recognized while no anticipated gains are recorded.
This is why an asset like stock must not be shown at a value higher than its realizable worth.
The matching convention pairs expenses with income of the same period; it does not govern stock valuation.
Consistency requires using the same accounting method each year, while realization states that income is recognized only when a sale is actually made.
Only the prudence convention ensures cautious and conservative valuation of stock.
Answer:D. Prudency