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According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above?
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Principle of Prudence and its Application
The principle of prudence is an accounting principle that requires an entity to exercise caution in preparing financial statements. It is also known as the principle of conservatism, which means that an entity should always underestimate its assets and overestimate its liabilities to avoid overstatement of financial position.
Outstanding Expenses
Outstanding expenses are expenses that have been incurred but not yet paid. As per the principle of prudence, outstanding expenses should be accounted for in the financial statements. This is because these expenses are already due, and the entity is liable to pay them. By accounting for outstanding expenses, the financial statements will reflect a more accurate picture of the entity's financial position.
Provision for Bad Debts
A provision for bad debts is a reserve set aside by an entity to cover the potential losses from non-payment of debts. The principle of prudence requires that an entity should create a provision for bad debts to reflect the uncertainty of recovering the outstanding debts. By creating a provision for bad debts, the entity is being cautious about the potential losses and is not overstating its financial position.
Depreciation
Depreciation is the systematic allocation of the cost of a fixed asset over its useful life. As per the principle of prudence, depreciation should be charged on assets to reflect the decrease in value over time. By charging depreciation, the entity is being cautious about the decrease in the value of the asset, and the financial statements will reflect a more accurate picture of the entity's financial position.
Conclusion
In conclusion, the principle of prudence requires an entity to exercise caution in preparing financial statements. By accounting for outstanding expenses, creating a provision for bad debts, and charging depreciation, an entity is being cautious and not overstating its financial position. This principle is important in ensuring that financial statements are reliable and provide a true and fair view of the entity's financial position.
The principle of prudence is an accounting principle that requires an entity to exercise caution in preparing financial statements. It is also known as the principle of conservatism, which means that an entity should always underestimate its assets and overestimate its liabilities to avoid overstatement of financial position.
Outstanding Expenses
Outstanding expenses are expenses that have been incurred but not yet paid. As per the principle of prudence, outstanding expenses should be accounted for in the financial statements. This is because these expenses are already due, and the entity is liable to pay them. By accounting for outstanding expenses, the financial statements will reflect a more accurate picture of the entity's financial position.
Provision for Bad Debts
A provision for bad debts is a reserve set aside by an entity to cover the potential losses from non-payment of debts. The principle of prudence requires that an entity should create a provision for bad debts to reflect the uncertainty of recovering the outstanding debts. By creating a provision for bad debts, the entity is being cautious about the potential losses and is not overstating its financial position.
Depreciation
Depreciation is the systematic allocation of the cost of a fixed asset over its useful life. As per the principle of prudence, depreciation should be charged on assets to reflect the decrease in value over time. By charging depreciation, the entity is being cautious about the decrease in the value of the asset, and the financial statements will reflect a more accurate picture of the entity's financial position.
Conclusion
In conclusion, the principle of prudence requires an entity to exercise caution in preparing financial statements. By accounting for outstanding expenses, creating a provision for bad debts, and charging depreciation, an entity is being cautious and not overstating its financial position. This principle is important in ensuring that financial statements are reliable and provide a true and fair view of the entity's financial position.
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According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above?
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According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above?.
According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to principle of prudence a outstanding expenses are accounted for b provision for bad debts is created c depreciation is charged on assests d all of the above?.
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