Accounting policy for inventories of Xeta Enterprises

Solution

The principle of prudence requires that when making accounting estimates or determining the value of assets or liabilities, a degree of caution should be exercised. This means that potential losses should be recognized in the financial statements, even if they have not yet occurred, while potential gains should only be recognized when they are realized. In the case of inventories, the principle of prudence suggests that inventories should be valued at the lower of cost or net realizable value to ensure that the carrying amount of inventories in the financial statements is not overstated.