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Prudence Principle

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Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses. Also, one should be conservative in recording the amount of assets, and not underestimate liabilities. The result should be conservatively-stated financial statements.
Another way of looking at prudence is to only record a revenue transaction or an asset when it is certain, and record an expense transaction or liability when it is probable. In addition, you would tend to delay recognition of a revenue transaction or an asset until you are certain of it, whereas you would tend to record expenses and liabilities at once, as long as they are probable. Also, regularly review assets to see if they have declined in value, and liabilities to see if they have increased. In short, the tendency under the prudence concept is to either not recognize profits or to at least delay their recognition until the underlying transactions are more certain.

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Edad recomendada: 13 años
2 veces realizada

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Colombia

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Prudence Principle Versión en línea

Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses. Also, one should be conservative in recording the amount of assets, and not underestimate liabilities. The result should be conservatively-stated financial statements. Another way of looking at prudence is to only record a revenue transaction or an asset when it is certain, and record an expense transaction or liability when it is probable. In addition, you would tend to delay recognition of a revenue transaction or an asset until you are certain of it, whereas you would tend to record expenses and liabilities at once, as long as they are probable. Also, regularly review assets to see if they have declined in value, and liabilities to see if they have increased. In short, the tendency under the prudence concept is to either not recognize profits or to at least delay their recognition until the underlying transactions are more certain.

por Eliab Lopez
1

is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognized and determines how to account for it. Typically, revenue is recognized when a critical event has occurred, and the dollar amount is easily measurable to the company.

Pistas

recognition principle states that expenses should be recognized in the same period as the revenues to which they relate. If this were not the case, expenses would likely be recognized as incurred, which might predate or follow the period in which the related amount of revenue is recognized.

Basically, assets including cash, account receivables, cars, computers equipment, land, building, and any other resources. These assets classed into two main classifications in the balance sheet. Current Assets, and Non-Current Assets. If entity financial statements are prepared based on IFRS, the recognition of assets in the balance sheet needs to meet their definition provided by the conceptual framework.

are the present obligation of the entity in the form of legally enforceable and result from past events. Liabilities will have future economic outflow from an entity. Those liabilities including account payable, salary payable, noted payable, accrual liabilities, short term loan, and long term loan. If the entity financial statements are prepared according to IFRS, then those liabilities should meet the recognition criteria of liabilities in the conceptual framework

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