Subject. This article discusses the issues related to adhering to the principle of prudence in accounting and the assessment and accounting of the potential impact of risks on financial reporting figures. Objectives. The article aims to examine valuation allowance and estimated liabilities as instruments for assessing and accounting for the potential impact of risks on the financial reporting figures of an economic entity. Methods. For the study, I used a systems approach and logical analysis. Results. Based on the analysis of various interpretations of the term Valuation Allowance, accounting regulations, the modern research findings, as well as the reasoning presented in this article, the article proposes an original definition of the concept of Valuation Allowance. The article also identifies valuation allowance and estimated liabilities, through the creation of which it is possible to account for and assess the potential impact of various risks on financial reporting figures. Conclusions and Relevance. Valuation allowance and estimated liabilities serve as accounting items through which various risks of an organization's financial and economic activities can be accounted for and assessed, thereby ensuring compliance with the prudence principle when preparing financial statements. The results of the study can be applied in accounting practice by business entities, as well as serve as a basis for further theoretical research.
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