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How does relevance of the concept of prudence to bad debts and the provision for doubtful debts?
Wiki User
∙ 15y ago
The prudence concept assumes that the worst can happen and tries to account for it in the accounts.
The provision for doubtful debts is an estimated percentage of debtors that are not expected to pay during the year. All the debtors may pay up during the year, meaning that the provision for doubtful debts was unnecessary, but it still lets the companies account for any possible bad debts during the year.
Wiki User
∙ 15y ago
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What is the relationship between a flow concept and a stock concept?
The flow concept is the one in which goods and services move from person to person. In the stock concept, stocks build up or get depleted, they do not flow.
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What concept is used in allowance for doubtful debts?
Prudence concept
Why provision for doubtful debt is prepared?
Provision for doubtful debt account is created by company to steadly build the stream of money in a separate fund to handle the actual bad debts properly and to maintain steady stream of profits or loss as well.
Advantages of prudence concept in financial accounting?
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Explain the importance of the Prudence concept?
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Prudence Concept in accounting?
preparation of account involve estimations, measurements and and valuations according to the conservatism or prudence concept it is a good practice to follow a procedure that tends to understate things.
The convention of conservatism takes into account all prospective profits but leaves all prospective losses?
According to this concept "expected losses are losses but expected gains are not gains". On the basis of this concept closing stock is valued at cost price or market price, whichever is lower. Provision for bad and doubtful debts are maintained.
Why concept of conservatism is called prudence?
Conservatism is often seen as prudence. People who are conservative do not waste things or use resources unwisely. This may make them seem as if they are prudish.
Does accounting concepts conflict?
Accruals and prudenceThe accruals concept requires future income (e.g. in relation to credit sales) to be accrued. The prudence concept dictates that caution should be exercised, so that if there is doubt about the subsequent receipt, no accrual should be made.Consistency and prudenceIf circumstances change, prudence may conflict with the consistency concept, which requires the same treatment year after year.In both situations, prudence must prevail.
What is prudence concept?
The concept of prudence in accounting is the exercise of caution and careful judgment when preparing financial statements. It involves ensuring that assets and profits are not overstated and liabilities and expenses are not understated, leading to a more conservative approach to financial reporting. Prudence helps to provide a more accurate and reliable representation of a company's financial position and performance.
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Prudence concept tends to understate the profit . depreciation is a tool through which we record our losses , which means that our profit is declining .This means that depreciation is a supportive tool for reducing profit. Matching concept tends to record the expense to the revenue generated from the assets . Hence depreciation fulfils the requirements of both the concepts .
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