Question
Explain the following briefly with appropriate example:
Conservation or Prudence Concept.
Conservation or Prudence Concept.
✓
Answer
Conservation or Prudence Concept: Prudence or Conservatism Principle is many a time described using the phrase “Do not anticipate a profit, but provide for all possible losses.” Stating differently, it takes into consideration all prospective losses but not the prospective profits. The application of this concept ensures that the financial statements do not paint a bette: picture than what it actually is.
Example: Closing stock is valued at lower of cost or net realisable value (market value) or making the provision for doubtful debts and discount on debtors in anticipation of bad debts and discount.
Example: Closing stock is valued at lower of cost or net realisable value (market value) or making the provision for doubtful debts and discount on debtors in anticipation of bad debts and discount.
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Similar questions
What do you understand by ledger folio?
Fill in the missing figures assuming CGST @ 9% and SGST @ 9%:
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|
S.No
|
|
₹
|
|
i
|
Sold goods to Brij on credit
|
25,000
|
|
ii
|
Cash received from Brij
Discount allowed to him
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10,000
500
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iii
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Goods returned by Brij
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5,000
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Open a 'T' shape Cash Account with the following transactions:
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S.No
|
|
₹
|
|
i
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Mohan started business with cash
|
40,000
|
|
ii
|
Purchased Goods
|
20,000
|
|
iii
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Sold Goods
|
24,000
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|
iv
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Paid Rent
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400
|
|
v
|
Paid salaries
|
600
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|
vi
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Drew for personal use
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1,000
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