Accounting for IGCSE & O level - Advanced Principles (Section 1 - No. 15)
What is the main focus of the prudence principle?
To overstate profits to attract investors.
To recognize profits before they are earned.
To exercise caution in accounting and avoid overstating assets or income.
To record all transactions, even those with immaterial values.
Explication
The prudence principle encourages accounting with caution, which often involves understating assets/income and overstating liabilities/expenses when uncertainties exist.