Accounting Assumptions

Question 1

The Accounting Entity Assumption

Answer 1

The accounting entity assumption is that the business entity is viewed as being separate from the owner/s and the business records are kept separate from the records of the owner.

Question 2

The Principle of Double Entry

Answer 2

The principle of double entry is that every transaction has a two fold effect, each part affecting one or more elements of the accounting equation in such a way that it remains in balance.

Question 3

The Accounting Period Assumption

Answer 3

The operating life of a business can be divided into equal, arbitrary time intervals for reporting purposes.

Question 4

The Going Concern Assumption

Answer 4

The life of the business will continue in operation for the foreseeable future and this will be reflected in the asset values in the balance sheet.

Question 5

The Accrual Accounting Assumption

Answer 5

Income and expense are recognised when they take place. Income when it is earned and expenses when it happened not when it has been paid or received.

Question 6

The Monetary Assumption

Answer 6

Only items that can have a monetary value attached gets added into the financial reports.

Question 7

Historical Cost

Answer 7

Assets and other expenditures will be recorded at their actual historical cost at purchased as shown by the receipts.