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Prudence is one of the Accounting Concepts that is included in Generally Accepted Accounting Principles (GAAP). We already discussed it in our previous article Generally Accepted Accounting Principles Prudence Concept , but here we discuss this accounting concept with reference to Revenues, Profits, Expenses and Losses. Under this Principle, revenues and profits should be treated as different from expenses and losses for the company businesses. All losses and Expenses of the entrepreneur must be recorded in the books of accounts as soon they are known to the entrepreneur while all the profits and revenues will never record in the books of accounts unless these actually earned by the entrepreneur during the accounting period. For Example, if there is an estimation that amounts due from the customer of the entrepreneur may become Bad Debts , then the Adjusting Entry is accounted for this amount due from the customers of entrepreneur. But in case of...

Here we discuss about Generally Accepted Accou nting Principle s (GAAP) Prudence Concept. What Does Prudence Mean This Accounting Concept states that anticipate no profit but provide for all possible losses or in other words we can say that where alternative procedures or valuations are possible, then entrepreneur must choose those alternatives that give the most cautious presentation of the financial performance and financial position of the company businesses. The Entrepreneur should be more cautious and anticipate loss first but no profit because when we make an estimate that profit will be made in future and if not made, then, we are not ready to meet the loss before its happening. So be careful and operate safely to maintain the stability of the company businesses. Stock Valuation is a good example of this concept. We always record value of Stock or Inventory at lower of cost or Net Realizable Value (NRP). If we value the Stock ...