Accounting Assumptions

Question 1

Accounting Entity Assumption

Answer 1

The assumption that the 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.

Question 2

Going Concern Assumption

Answer 2

The assumption that the business will continue operation in the future, and its records are kept on that basis.

Question 3

Period Assumption

Answer 3

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

Question 4

Accrual basis assumption

Answer 4

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.