On The Application Of Prudence Principle In Enterprise Accounting

Abstract: the principle of prudence is an important principle in the application of enterprise accounting. The accounting system of enterprises and the specific accounting standards issued have fully embodied this principle.

The principle of prudence is widely applied, which helps prevent enterprises from appearing on the market of packaging, exaggerating assets and expanding profits. It can provide more authentic and reliable accounting information for the parties concerned, protect the interests of creditors and small shareholders, and enhance the competitiveness of enterprises in the market.

However, due to its obvious tendencies and subjective assumptions, the principle of caution has weaknesses.

With the expansion of application scope, the space of artificially adjusting costs and manipulating profits has also increased.

How to correctly apply this principle, strengthen accounting theory study, improve accountants' professional quality and professional judgement ability is the key.

Key words: Accounting prudence principle; accounting information; assets; profit, "enterprise accounting standards" second chapter eighteenth: "accounting should follow the requirements of prudence principle, reasonable accounting for possible losses and costs."

The enterprise accounting system (hereinafter referred to as the "system") consists of eleventh articles and twelfth stipulates: "when conducting accounting, enterprises should follow the principle of prudence, do not plan assets or profits, pay less debts or fees, but not prepare for secret preparation."

This is the general requirement of the accounting standards for enterprises and the system to implement the prudence principle in accounting.

The principle of prudence is also called Conservatism, or conservatism.

It is aimed at the uncertainties in business activities, requiring people to be cautious and cautious in accounting treatment.

When there are more than two ways to choose some economic business or accounting matters, we should use the method and procedure of increasing profits and exaggerating assets without any impact on reasonable choice. We should make accounting treatment, not counting assets or profits.

The principle of caution is an important principle used in enterprise accounting, especially the newly promulgated system and revised specific accounting standards, which embodies the principle of caution.

In fact, its specific application is not started today, it has been used in the accounting practice of enterprises in our country, but the scope and content of it are not comparable with the "system" and the revised accounting standards.

The application and embodiment of prudence principle in enterprise accounting is reflected in the application of the prudence principle in accounting, and it is embodied in many aspects of the system and specific accounting standards. Here are some examples to illustrate.

The 1. option of inventory valuation method.

When the inventory is calculated by actual cost, the method of issuing inventory includes first in first out, last in first out, weighted average method, moving weighted average method and individual valuation method.

When the price rises, the valuation of the issued inventory should adopt the last in first out method, which will make the cost close to the current level, reduce the water in the profit, and the value of the end inventory is low, which embodies the principle of caution.

If the first in first out method is adopted, the cost will be low, the profit will increase and the value of the end inventory will increase.

The choice of depreciation method for fixed assets is 2..

The depreciation methods of fixed assets include two categories: flat speed depreciation method (average age method, workload method) and accelerated depreciation method (annual sum method and double declining balance method).

If the enterprise uses accelerated depreciation method to calculate depreciation of fixed assets, it can enable enterprises to make more depreciation in the first few years of fixed assets utilization, thereby reducing profits and paying less income tax. It is equivalent to obtaining an interest free loan, and it can make the input of funds recover as early as possible and raise the utilization ratio of funds, which reflects the caution.

3. eight asset impairment provisions are prepared.

The fifty-first provision of the system stipulates: "enterprises should conduct a comprehensive inspection of assets on a regular basis or less than the end of each year, and reasonably predict the losses that may occur in the assets according to the requirements of prudence, and prepare assets impairment for possible assets losses."

The system will also increase the range from two to eight.

This fully embodies the principle of prudence. The starting point is that enterprises are required to take full account of the possible loss of assets and to take into account the relevant costs, so as to ensure that the assets of the enterprises are more real and effective, ensure the financial condition and the safe and reliable operation of the enterprises, and ensure the long-term interests of investors are well protected.

(1) short term investment in depreciation.

The system stipulates that enterprises should measure the short-term investment at the end of the term according to the cost and market price.

That is, when the end market price of short-term investment is lower than the cost, it is priced at market price; when the market price is higher than the cost, the price is calculated at the cost.

For the difference between the market price and the cost, the short-term investment depreciation should be prepared.

In the balance sheet, the short-term investment item is reflected by the net amount of its depreciation reserve.

This method only confirms the loss of market price and does not confirm the increase of market price. It can ensure the stable financial situation of enterprises in the current situation of frequent and irregular securities market.

(2) loss allowance for bad debts.

The system expands the scope of provision for bad debts, that is, accounts receivable other than accounts receivable, and other receivables are also included in the scope of the reference. On the basis of the estimated proportion (0.3% to 0.5% of the original industry accounting system) and the method of accounting (the percentage of the receivable account used in the original industry accounting system), it is determined by the enterprises themselves, which increases the choice space for enterprises and is favorable for enterprises to resist the risks arising from the loss of bad debts.

(3) inventory depreciation reserve.

The inventory of an enterprise is calculated according to historical cost.

But under the market economy condition, the price of inventory is changing constantly, especially the development of science and technology, which makes the renewal speed of products faster and faster. Due to the decline of stock prices, obsolescence, obsolescence, damage and other reasons, the value of inventory is reduced.

If it is still priced at historical cost, it is obviously not conducive to the turnover of enterprise capital, and the phenomenon of exaggerated assets leads to distortion of accounting information and does not conform to the principle of prudence.

Therefore, the system stipulates that the valuation of the ending inventory is based on the lower cost and net realizable value, that is, the method of calculating the ending inventory in terms of the lower cost and the net realizable value.

When the cost is lower than the net realizable value, the inventory is priced at cost; when the cost is higher than the net realizable value, the stock is calculated at net realizable value.

According to the net realizable value below the cost of inventory, the provision for the depreciation of inventory is provided.

On the balance sheet, the inventory items are reflected in the net amount minus the depreciation reserve.

(4) long-term investment, fixed assets and intangible assets impairment.

The system stipulates that an enterprise should check the long-term investment, fixed assets and intangible assets one by one at the end of the term. If the market price continues to fall, and the operating condition of the investment unit deteriorates, or the technology is obsolete, damaged, and long idle, and so on, resulting in its recoverable amount lower than its book value, the long-term investment, fixed assets, and intangible assets impairment reserve shall be prepared.

On the balance sheet, the long-term investment and intangible assets are reflected in the net amount after the impairment allowance is prepared, and the impairment allowance for fixed assets is reflected in the reduction of the net value of the fixed assets.

(5) construction allowance for construction projects.

When a construction project is expected to be impaired, if the construction is suspended for a long time and is not expected to start again within three years, the provision for impairment of assets should be made according to the provisions.

On balance sheet, construction projects are reflected in the balance after subtracting the value of construction works.

(6) entrusted loan impairment allowance.

The enterprise shall regularly inspect the principal of the entrusted loan and make a low measurement according to the principal amount and the recoverable amount of the entrusted loan. The recoverable amount is lower than the principal difference of the entrusted loan, and the value reduction shall be prepared.

On the balance sheet, the principal and interest receivable of the entrusted loan are deducted from the net amount after the impairment provision is prepared and incorporated into short-term investment or long-term debt investment projects.

In addition, the system also stipulates that the interest rate entrusted by an enterprise can not be recovered at the expiration of the time limit, and the interest shall be withdrawn and the interest that has already been calculated shall be refunded.

4. capital reserve preparation project.

The system stipulates that: for non cash assets held for donation, foreign investment is calculated by the equity method, and because of the increased investment and increase of the invested units and other reasons, the enterprise will not be recognized as an ordinary interest when the owner's rights and interests of the invested unit are increased. If it is included in the capital reserve preparation project, the realized income will be pferred to the general public account after the disposal of the non cash assets or long-term equity investments.

The profit and loss of the 5. pending property will be dealt with in that year.

The system stipulates that inventories and fixed assets should be regularly stocktaking and inventory at least once a year.

If the check result is not consistent with the book record, the cause should be identified before the end of the term. According to the management authority of the enterprise, after the approval of the shareholders' meeting or board of directors or manager (director) meeting and similar institution, the processing will be finished before the end of the closing period.

In this way, enterprises have sufficient autonomy in dealing with long-term inventory depreciation, poor liquidity, book cost higher than the market price, and disposal of fixed assets with inventory surplus, inventory losses and damaged assets, so as to ensure the liquidity of these two assets.

6. debt restructuring - only recognised the losses arising from the reorganization and did not recognize the proceeds.

The newly revised accounting standards for enterprises, debt restructuring, stipulates that a certain amount of debt should be paid in cash below the debt book value: the debtor should recognize the difference between the book value of the reconstituted debt and the cash payment as capital surplus and do not recognize the proceeds. Creditors should be recognized as the current loss, that is, extra business expenditure - debt restructuring losses.

Where a non cash asset is used to clear a certain debt: the debtor shall recognize the difference between the book value of the reconstituted debt and the sum of the non cash assets book value and the related taxes and fees of the pferred debt as capital surplus or loss in the current period; the creditor shall be the book value of the pferable non cash assets according to the book value of the reorganization creditor's rights.

That is to say, when undertaking debt restructuring, enterprises can only confirm the losses arising from the reorganization, do not confirm the proceeds of the reorganization, do not anticipate future or profitable, but predict future or expenses.

If it exists or gains, it can only be treated as the current income when it is actually received.

Fully embodies the connotation of prudence principle, and helps prevent enterprises from using debt restructuring to regulate profits.

7. non monetary pactions.

"Accounting standards for enterprises - non monetary pactions" stipulates that non monetary pactions occur in enterprises, and the proceeds are not recognized in addition to the supplementary price.

8. recognition and measurement of income.

"Accounting standards for enterprises - income" stipulates that income must be satisfied when certain related conditions are met at the same time.

When the result of the paction of labor services can not be reliably estimated, the enterprise should confirm and measure the following conditions of income: (1) if the labor cost that has occurred is expected to be compensated, the income should be calculated according to the labor cost that has been incurred, and the cost should be carried forward at the same cost; (2) if the labor cost that has occurred has not been fully compensated, it should be recognized according to the labor cost that can be compensated, and according to the labor cost incurred, as the current cost, the confirmed amount is less than the difference of the labor cost already incurred, as the current loss; (3) if the labor cost incurred has not been compensated, the labor cost can not be compensated, and the labor cost should be taken as the current cost, and the income should not be recognized. If

These Provisions fully reflect the principle of caution.

9. recognition and measurement of intangible assets.

"Accounting standards for enterprises - intangible assets" stipulates that the development cost of intangible assets developed by enterprises is directly included in the current cost and does not include the value of intangible assets. When intangible assets are not expected to bring economic benefits to enterprises, enterprises should sell the intangible assets' book value.

10. investment.

The newly revised "enterprise accounting standards - investment" stipulates that the valuation price for non cash assets invested in foreign investment is higher than its book value and does not confirm the proceeds. For the difference in equity investment, if the loan is amortized for a period not exceeding 10 years, if it is a loan, it is amortized according to the period not less than 10 years. When the enterprise receives short-term dividends or interest from short-term investments, it does not recognize the proceeds, but it is reflected in the net profit and loss when it is disposed.

The two principles of prudence principle apply in Accounting: from the above examples, we can see that the principle of prudence is embodied in the whole process of accounting, including accounting recognition, measurement, reporting and so on.

From the point of accounting confirmation, it is required to establish the standard of confirmation on a sound and reasonable basis; from accounting measurement, it is requested that assets or profits should not be overestimated, and liabilities or expenses should not be underestimated; in accounting reports, accounting reports are required to provide true, objective and complete accounting information to users of accounting information, especially reporting risks and information that may occur.

From the application of prudence principle