Paper 2 · November 2012 · company final accounts

State what the prudence concept requires a business to do when it prepares its financial statements.

ARecord every item at the amount actually paid for it

BBring every expected future profit into this year's accounts at once

CTreat every item the same way from one year to the next

DProvide for all foreseeable losses, but take no unrealised profit

Explanation

Prudence keeps assets and profit from being overstated: a profit is recognised only once it is realised, while a liability or a loss is provided for as soon as it is foreseen, even where the amount can only be estimated.

Derived from ZIMSEC Accounting 9197/2 Paper 2, November 2012, Q1

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