Discussion on the principle of prudence in the acc

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Discussion on the principle of prudence in the accounting application

Abstract accounting principle of prudence is one of the principles to be followed, the correct understanding and application of the principle of prudence is important. This detailed analysis of the meaning of the principle of prudence, expounded the principle of prudence in the accounting of the specific application, and pointed out the use of the principle of prudence should pay attention to related issues. Against the principle of prudence as the corporate market, an important means of economic risk, have become an increasing business and relevant departments. Accounting principle of prudence is one of the principles to be followed. However, the precautionary principle will affect its financial position, operating results, and users of corporate financial reporting judgments. If you do not properly understand and apply the principle of prudence, may lead to distortions in corporate financial information, and distortion, which also would violate the basic principles of accounting. Therefore, the correct understanding and application of the principle of prudence it is very important. Chinese papers League finishing. One understanding of the principle of prudence the principle of prudence or conservatism, also known as the principle of stability. It requires the accounting officer or accounting to certain economic and business matters in the presence of different accounting methods and procedures are available, without affecting the premise of rational choice, as far as possible to select a non-inflated profits and inflated equity accounting methods and accounting procedures, requiring a reasonable accounting of costs and losses that may occur. Accounting treatment that is hesitant to make difficult decisions during this period using the assets are not overstated and benefits solutions. The guidelines now common practice in the international arena are: delayed recognition of revenue; as soon as the acknowledgment; undervalued assets; overvalued liabilities. The uncertainty of economic activity is generated by the premise of the principle of prudence. Variability of operating result in accounting recognition and measurement uncertainty, which would require accounting personnel to maintain careful accounting approach, to fully estimate the risks and losses that may occur, and to some extent reflect the risks of providing information on . The principle of prudence that pessimistic than optimistic about the accounting practices of accounting practices in certain circumstances a conservative, cautious than optimistic, bold is stronger, or else risk facing investors and policy makers will increase. Application of the principle of prudence, favorable business operators keep a cool head,[link widoczny dla zalogowanych], make the correct decision on the objective environment to avoid business risk and stable profits and losses; For investors, the principle of prudence will help prevent over-optimism they generated, avoid inflated profits due to erosion of capital caused by the risk of profit distribution; for the accounting staff, the care of blind optimism can be avoided by providing information to the investors claim for losses incurred by risks. Can be seen that the economic life of prudence as a sedative is quite practical significance. Second, the principle of prudence in the accounting the concrete application of the principle of prudence in the the emergence of revenue recognition and measurement of the accelerated depreciation of fixed assets, issued in the case of price increases in the LIFO inventory valuation method. The following five aspects to talk about the principle of prudence in the accounting of the specific application. (A) the provision for asset impairment eight and reasonably expected loss of the asset may be, on the possible provision for impairment loss of assets. Provision for impairment of assets, fully embodies the principle of prudence. The starting point is that requires companies to value the loss of an asset may be fully considered and included in the relevant costs to ensure that the assets of enterprises more real, effective, and to ensure that the financial position and operating results of the safe and secure, to ensure that investors long-term interests are well protected. (B) the emergence of contingent liabilities does not happen to be confirmed; or for past transactions or events of the present obligation, the obligation is not probable that an outflow of economic benefits or the amount of the obligation can not be reliably measured. Liability has two basic characteristics: liabilities from past transactions or events; or the result of contingent liabilities is uncertain. Liabilities include two categories of obligations: One is the potential obligations, the outcome of uncertain future events only by the occurrence or non-occurrence to prove; the other is a special present obligation, its special because of the the present obligation is not likely to lead to an outflow of economic benefits, or the present amount of the obligation can not be reliably measured. (C) Revenue recognition and measurement provisions of Accounting Standards income in a number of related conditions must be met simultaneously in order to confirm that, if the transaction results in the provision of services can not be estimated reliably, the enterprise the balance sheet date should be, respectively, on income recognition and measurement of the following conditions: ① If the costs incurred are expected to be recoverable, the costs incurred shall be calculated has been recognized revenue, according to the same amount of carry-over costs; ② If the costs incurred are not all expected to be compensated, should be able to get compensation for labor costs that are income according to labor costs that have occurred as a current expense, the amount recognized in the cost incurred are less than the difference as profit loss; ③ If all the costs incurred are not entitled to compensation, labor costs should be incurred as a current expense, not revenue is recognized. These provisions fully reflect the precautionary principle.