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Question
Which of the following is 'true' regarding the Prudence Principle of Accounting?
Which of the following is 'true' regarding the Prudence Principle of Accounting?
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Solution
The correct option is A Taking care of the future losses
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 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.
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 (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe.
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.
The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.
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