Professional Documents
Culture Documents
Prudence
Historical Cost • Revenue and profits are not anticipated but are
• Transactions are recorded at their cost to the
recognised by inclusion in the profit and loss account only
when realised in the form of cash or other assets; the ultimate
business. cash realisation of which can be assessed with reasonable
• Requires that assets appear in the balance sheet at certainty. Profit or any asset should be stated at the lowest
reasonable figure.
their original cost, less any depreciation to date.
• Provision is made for all known liabilities (expenses
• It is assumed that the purchasing power of money will and losses) whether the amount is known with certainty or is a
remain unchanged. best estimate in the light of information available. Any liability
should be stated at the highest reasonable figure.
Money Measurement
• Accounting statements restrict themselves to matters
Realisation
which can be measured objectively in money terms. • States that income is recognised as and when it is
• Items such as the values of the company's customer
“earned”.
base and its work force are excluded. • Transactions are realised when cash or a debtor
replace goods or services.