Accounting Assumptions and Qualitative Characteristics

Which assumption has been breached if the owner does not record drawings from the business

• Entity Assumption

• Accrual Basis Assumption

• Period Assumption

• Verifiability

• Faithful Representation

The Qualitative Characteristic that ensures Source Documents are used is

• Entity Assumption

• Accrual Basis Assumption

• Period Assumption

• Verifiability

• Faithful Representation

The Qualitative Characteristic that ensures that accounting information is complete, accurate and free from bias is

• Entity Assumption

• Accrual Basis Assumption

• Period Assumption

• Verifiability

• Faithful Representation

This assumption is used to determine an accurate profit for the reporting period by subtracting expenses incurred from revenues earned in that same period

• Entity Assumption

• Accrual Basis Assumption

• Period Assumption

• Verifiability

• Faithful Representation

This assumption allows us to divide the life of the business into arbitrary periods to recognise the revenue and deduct the expenses incurred for the same period in order to determine profit.

• Entity Assumption

• Accrual Basis Assumption

• Period Assumption

• Verifiability

• Faithful Representation

This qualitative characteristic is supported by the use of sub-headings, totals and sub-totals in Accounting Reports

• Entity Assumption

• Understandability

• Period Assumption

• Verifiability

• Faithful Representation

Which answer explains the Accounting Entity Assumption

• The owner and the business are separate entities and any transaction with the owner must be recorded.

• Source Documents provide proof that a transaction occurred and can be referenced to verify the accuracy.

• By using source documents and verifying the accuracy this ensures that reports are then completed accurately and free from error or bias.

• Materials on hand is an asset that can provide future economic benefit but once part of it is used in the period that becomes an expense and must be included to calculate profit accurately

• Classification allows any user with basic business knowledge to be able to comprehend it through the use of sub-headings, totals and sub-totals

Which answer explains the Understandability Qualitative Characteristic

• The owner and the business are separate entities and any transaction with the owner must be recorded.

• Source Documents provide proof that a transaction occurred and can be referenced to verify the accuracy.

• By using source documents and verifying the accuracy this ensures that reports are then completed accurately and free from error or bias.

• Materials on hand is an asset that can provide future economic benefit but once part of it is used in the period that becomes an expense and must be included to calculate profit accurately

• Classification allows any user with basic business knowledge to be able to comprehend it through the use of sub-headings, totals and sub-totals

Which answer explains the Verifiability Qualitative Characteristic

• The owner and the business are separate entities and any transaction with the owner must be recorded.

• Source Documents provide proof that a transaction occurred and can be referenced to verify the accuracy.

• By using source documents and verifying the accuracy this ensures that reports are then completed accurately and free from error or bias.

• Materials on hand is an asset that can provide future economic benefit but once part of it is used in the period that becomes an expense and must be included to calculate profit accurately

• Classification allows any user with basic business knowledge to be able to comprehend it through the use of sub-headings, totals and sub-totals

Which answer explains the Accrual Basis Assumption

• The owner and the business are separate entities and any transaction with the owner must be recorded.

• Source Documents provide proof that a transaction occurred and can be referenced to verify the accuracy.

• By using source documents and verifying the accuracy this ensures that reports are then completed accurately and free from error or bias.

• Materials on hand is an asset that can provide future economic benefit but once part of it is used in the period that becomes an expense and must be included to calculate profit accurately

• Classification allows any user with basic business knowledge to be able to comprehend it through the use of sub-headings, totals and sub-totals