Accounting Assumptions

Question 1

What is the Going Concern Assumption?

Answer 1

The assumption assumes a company plans to stay in business. If bankruptcy appears imminent, or the assumption isn’t true for a business for some other reason, it’s important for the company to recognize its deferred expenses right away. Otherwise, it’s safe to assume the company expects to stay operational for the foreseeable future.

Question 2

What is the Accrual Basis assumption?

Answer 2

The assumption that revenues are recognised when earned and expenses are recognised when incurred, so profit is calculated as revenue earned in a particular period less expenses incurred in that period.

Question 3

What is the Period assumption?

Answer 3

The assumption assumes reports are prepared for a particular period of time, such as a month or a year, in order to obtain comparability of results.

Question 4

What is the accounting entity assumption?

Answer 4

The assumption that records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities.