Prudence Concept Accounting

Prudence Concept Accounting

The concept of prudence requires being careful when estimating figures in an uncertain situation to ensure the assets and incomes are not overstated. Likewise the concept requires in case of uncertainty, expenses and liabilities should not be understated.

For example, if at a reporting date, a company identifies that recoverable value of its asset is less than its book value then it should record a provision (expense) to reduce the value of asset to its estimated recoverable value. 

One thought on “Prudence Concept Accounting”

  1. rxoc says:

    Nice article, i like it!

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