According to__________ accounting concepts, while preparing accounts we anticipate losses.
Prudence Concept or Conservatism principle is a key accounting principle that makes sure that assets and income are not overstated, and provision is made for all known expenses and losses whether the amount is known for certain or just an estimation, i.e., expenses and liabilities are not understated in the books of accounting. Prudence concept has been put in place to ensure that the person who is making the financial statements makes sure that the assets and income are not overstated to make sure the company is not overvalued. The expenses are not understated to ensure that the company is not rightly valued. The prudence principle in accounting is often described using the phrase “Do not anticipate profits, but provide for all possible losses.” In other words, it considers all prospective losses but not the prospective profits. The application of the prudence concept ensures that the financial statements present a realistic picture of the state of affairs of the enterprise and do not paint a better picture than what is. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked Recognizing Revenues
Recognized Expenses
Examples
“Cost of sales = Opening StockOpening Stock is the initial quantity of goods held by an organization during the start of any financial year or accounting period. It is equal to the previous accounting period's closing stock, valued in accordance with appropriate accounting standards based on the nature of the business.read more + Purchases – Closing stock.”
Advantages
Disadvantages
Recommended ArticlesThis has been a guide to Prudence Concept in Accounting. Here we will look at the overview of the Prudence Principle and its meaning, along with practical examples, advantages, and disadvantages. You may also find some useful accounting articles below –
What are the 4 concepts in accounting?There are four main conventions in practice in accounting: conservatism; consistency; full disclosure; and materiality.
What is Realisation concept in account?The realization principle of accounting helps accountants understand when they can recognize and record a payment received by their client as revenue. According to this principle, accountants can record revenue when their clients complete a service or deliver a product to a customer.
What are the 5 accounting concepts?: Business Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept, Duality Aspect concept, Realisation Concept, Accrual Concept and Matching Concept.
Which accounting principle states that all anticipated losses should be recorded but all anticipated profits should be ignored?Which accounting principle states that all anticipated losses should be recorded but all anticipated profits should be ignored? Answer- Convention of Prudence states that all anticipated losses should be recorded but all anticipated profits should be ignored.
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