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unit-12-basic-concepts-relating-to-final-accounts

Unit-12 Basic Concepts Relating to Final Accounts

In this unit you will learn about the basic accounting concepts or principles which guide the preparation of final accounts.

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What is the aim of Conservatism Concept?


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Learning Pundits Content Team

Written on Jun 25, 2019 5:03:58 PM

This is also known as Prudence Concept. This concept tries to ensure that all uncertainties . and risks inherent in business are adequately provided for. Accountants generally prefer understatement of assets or revenues, and overstatement of liabilities or costs. This is in accordance with the traditional view which states 'anticipate no profits but anticipate all losses’.

In other words, account for profits only when they are actually realized. But in case of losses you should take into account even those losses which may be a remote possibility. This is why closing stock is valued at cost price or market price whichever is lower. Provision for doubtful debts and provision for discounts on debtors are also made according to this concept