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PRUDENCE OR CONSERVATISM CONCEPT OR PRINCIPLE |
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· Recognize revenue only when they are reasonably certain · Recognize expenses as soon as they are reasonably possible |
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NOTES: |
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This concept basically does not encourage the anticipation of recognizing income when it is not certain. It prefers that any expenses that can be reasonably ascertain should be taken up. |
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ILLUSTRATION |
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Company A has completed 50% of a project. Based on its costing and other evidence, it knows that the project is going to incur losses. Question: Should the company only take up its losses at the completion of the project. Answer: Based on prudence concept, the company should quickly in its financial year take up this losses instead of waiting for the 100% completion of the project. CLICK THIS TO SEE MORE ARTICLES ON ACCOUNTING CONCEPTS & PRINCIPLES |