Prudence concept

Khalid_Dawar · 12-11-2005, 12:42 AM

Salam to all brothers.....
Can some one tell me about the following terminalogies
1. Prudence concept
2. Historical Cost

KHALID

salmangul · 12-17-2005, 04:44 PM

salams

i think that for historical cost, u dont need to take into account the depreciation method being used. whether written down method or straight line method is bein used, does not have any concern with historical cost convention.

Gul

maani · 12-20-2005, 03:38 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">The accounting concept that insists on a realistic view of business activity and stresses that anticipated revenues and profits have no place in a profit and loss accountuntil they have been realised in the form of cash or other assets <hr height="1" noshade id="quote"></blockquote id="quote">

Dear Sam,
Revenues and expenses are shown in the profit and loss account of the period to which they belong, it dosen't matter when their cash value has recieved or paid...
In very few words "prudence concept" means assets should not be overstated and liabilities should not be understated...

Ace

Desert Sleet · 12-22-2005, 10:45 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Khalid_Dawar
 Salam to all brothers.....
Can some one tell me about the following terminalogies
1. Prudence concept
2. Historical Cost

KHALID
<hr height="1" noshade id="quote"></blockquote id="quote">
1.
Prudence 
Otherwise known as conservatism. It is this concept more than any other that has given rise to the idea that accountants are pessimistic boring people!! Basically the concept says that whenever there are alternative procedures or values, the accountant will choose the one that results in a lower profit, a lower asset value and a higher liability value. The concept is summarised by the well known phrase 'anticipate no profit and provide for all possible losses'. Thus, undue optimism can never be part of the make up of an accountant! The danger is that if an optimistic view of profits is given then dividends may be paid out of profits that have not been earned.

2.
Sam Quoted REALISATION
The realisation concept helps the accountant to determine the point at that he feels that a transaction is certain enough for the profit to be made on it to be calculated and taken to the profit and loss account. Realisation occurs when a sale is made to a customer. The basic rule is that revenue is created at the moment a sale is made, and not when the account is later settled by cheque or by cash. Thus, profit can be taken to the profit and loss account on sales made, even though the money has not been collected. The sale is deemed to be made when the goods are delivered, and thus profit cannot be taken to the profit and loss account on orders received and not yet filled. An exception to this rule would be a long term contract that involve payments on account before completion of the work.

__________________
<blockquote id="quote">quote<hr height="1" noshade id="quote">The Only True Wisdom Is In Knowing You Know Nothing <hr height="1" noshade id="quote"></blockquote id="quote">

finance · 09-11-2006, 01:37 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by sam
 profits have no place in a profit and loss accountuntil they have been "realised" in the form of cash
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please read carefully i havnt used the words "RECIEVED" or "PAID" but "REALISED" , which means to become aware of something.

<hr height="1" noshade id="quote"></blockquote id="quote">

wrong.

Profit has nothing whatsoever got to do with cash or being realised as cash, under the accrual concept of accounting.

Profit is derived from all revenue earned, less all expenditure incurred, for a given period. That's when a profit is realised.

The profit, after all revenue earned and all expenditure incurred, is
accounted for within the balance sheet in retained profits or retained earnings.