PRC-1 · Chapter 1 · Question 14 of 100
The prudence concept in accounting requires caution when making judgments under conditions of uncertainty. Which of the following actions correctly applies the prudence concept?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Creating an allowance for doubtful debts.
Explanation
The prudence concept states that assets and income should not be overstated, while liabilities and expenses should not be understated. Creating an allowance for doubtful debts anticipates potential future losses, applying this caution.
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