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As per the prudence concept of accounting, Assets and income should not be overstated, and liabilities and expenses should not be understated. Once a liability or expense has occured, provision should be provided for even if the amount or time is uncertain. As regards income, it can be recognized only if the amount and receipt is certain.
The prudence concept, also known as the conservatism principle, is an accounting principle that requires an accountant to record liabilities and expenses as soon as they occur, but revenues only when they are assured or realized.
