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Sir, can you explain me how one accounting convention can conflict the other?
Here is one example:
Suppose we have made a sale on credit and the money is still owed to us at the end of the year.
The accruals concept says that we should bring in all income earned during the year whether or not we have received the cash – so we bring the sale into out Statement of profit or loss.
However, suppose we have reason to think that the person owing the money might not pay. Using the prudence concept we create an allowance for receivables which reduced the profit.
So there is a conflict – do we increase the profit or not? We do not (because we create the allowance) but it is an example of a conflict.
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