Question

Identify whether these professionals should or shouldn’t record the transaction in the company accounts using the principle of prudence.

Answer 1

Answer:

Should Record,

• Jacob Bought goods on credit
• JCL inc. bought stocks of another company
• Sarah estimates that the value price of the building has risen by $50,000

Explanation:

Under the prudence concept, we do not overestimate the amount of revenues recognized or underestimate the amount of expenses. We should also be conservative in recording the amount of assets, and not underestimate liabilities.