Name and explain the accounting convention which says record all anticipated losses but ignore all anticipated gains.

The accounting convention is the Principle of Conservatism (or Prudence).

According to this principle, all anticipated losses must be recorded, but all anticipated gains should be ignored. Conservatism is the policy of "playing safe".

Examples of the application of this principle:

(a) Closing stock is valued at cost price or market price, whichever is lower — losses due to fall in market price are recognised, but gains due to rise in market price are ignored.

(b) Provision for doubtful debts is created in anticipation of actual bad debts, even though the actual loss has not yet occurred.

(c) Joint life insurance policy is shown at its surrender value rather than at the total premiums paid.

However, the principle of conservatism should be applied carefully. Excessive conservatism may result in the creation of secret reserves, which is against the Principle of Full Disclosure.