21
Question
The policy of 'anticipate no profit and provide for all possible losses' is followed due to ____________.
The policy of 'anticipate no profit and provide for all possible losses' is followed due to ____________.
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Solution
The correct option is B Conservatism Concept
The concept of conservatism (also called ‘prudence’)
provides guidance for recording transactions in the book of accounts and is
based on the policy of playing safe.
The concept states that a conscious
approach should be adopted in ascertaining income so that profits of the
enterprise are not overstated.
The
concept of conservatism requires that profits should not to be recorded until
realised but all losses, even those which may have a remote possibility, are to
be provided in the books of accounts.
For example, Provision
for doubtful debt is created in anticipation of bad debts etc.
The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe.
The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.
The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.
For example, Provision for doubtful debt is created in anticipation of bad debts etc.
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