A business should not lay claim to any profit before it is earned. This is in accordance with the

The rule that a business should not anticipate profit before it is actually earned is the prudence concept (also called the concept of conservatism). It requires that revenues and profits are recognised only when they are reasonably certain, while potential losses and liabilities are provided for as soon as they are foreseen, even if not yet certain.

Applying prudence prevents a business from overstating its financial position by recording profit on a transaction that has not yet been completed or confirmed, which would mislead anyone relying on the accounts, such as creditors, investors, or tax authorities.

This is different from the going concern concept, which assumes the business will continue operating for the foreseeable future; the consistency concept, which requires the same accounting methods to be used from one period to the next so that results can be compared; and the dual aspect concept, which underpins double-entry bookkeeping by recognising that every transaction has two effects. None of these three concepts is about withholding recognition of unearned profit.

Whenever a question describes caution in recognising gains but full recognition of foreseeable losses, that combination is the hallmark of prudence.