Page 28 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

Consistency in accounting allows for better or misleading. It encourages a conservative
comparability of financial statements, approach to reporting financial information,
enabling users to make meaningful which can help to prevent overstatement of

comparisons and assessments of an entity’s assets or income and mitigate the risk of
financial performance and position over financial misstatements or manipulation.
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time. If a change in accounting methods or By recognising potential losses or risks
principles is deemed necessary, it should more quickly and being cautious in revenue
be accompanied by proper disclosure and recognition, the prudence principle promotes
justification, typically in the notes to the a more realistic and reliable representation
financial statements. It is important to note of an entity’s financial position and

that the consistency principle does not performance.
mean that accounting methods cannot be
changed or updated. Changes in accounting
standards, regulations, or circumstances may It is important to note that the prudence
require adjustments to accounting methods. principle should be applied judiciously and
However, any changes should be made with should not be used as a justification for
careful consideration and with the aim of intentionally understating assets or income
improving the relevance and reliability of or overstating liabilities or expenses. The
financial information. principle aims to strike a balance between
caution and providing a true and fair
Prudence/conservatism principle view of an entity’s financial position and

Prudence, also known as the conservatism performance.
principle, is an important concept in Book-
keeping and accounting. It suggests that Dual aspect or the duality principle
when faced with uncertainty or doubt, In Book-keeping, the dual aspect or

accountants should exercise caution and duality principle is a fundamental concept
choose the option that is more conservative in accounting that forms the basis for
or prudent. In other words, it is better to the double-entry Book-keeping system.
make mistakes on the side of understating According to the duality principle, every

assets and revenues or overstating liabilities financial transaction has two offsetting
and expenses rather than overstating assets effects. Each transaction affects at least
and revenues or understating liabilities and two accounts, with equal effects that cancel
expenses. each other. This principle recognises that
every transaction involves a give-and-take
The prudence principle helps to ensure that relationship. This is the foundation of the
financial statements are not too optimistic double entry principle that has become

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Student’s Book Form One

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