What is the principle that states you should never overstate assets or revenues or understate liabilities or expenses?

The principle that dictates you should never overstate assets or revenues or understate liabilities or expenses is known as the Conservatism Principle. This principle is fundamental in accounting because it aims to ensure that the financial statements present a realistic and cautious depiction of a company's financial position. By adhering to this principle, accountants are encouraged to recognize expenses and liabilities as soon as possible while only recognizing revenues and assets when they are assured of being realized. This approach helps prevent misleading representations of financial health, ensuring that users of financial statements, such as investors and creditors, have a more accurate picture of the company’s economic worth.

The other principles do not directly address the balance and caution necessary for asset and liability reporting. The Revenue Recognition Principle, for example, focuses more on the timing of revenue recognition rather than the level of estimation regarding revenue or asset valuation. The Cost Principle pertains to valuing assets based on their purchase price rather than potential market value. The Monetary Unit Principle relates to the measurement of financial transactions in a consistent currency and does not cover the accuracy in reporting assets and liabilities.