Assumptions

The reporting period assumption means

• Business transactions are recorded only when cash changes hands

• A business’s life is divided into specific time periods for reporting purposes.

• Financial statements are prepared randomly when needed.

• A business will continue forever without interruption.

The going concern assumption means

• A business will continue operating in the foreseeable future

• A business will close down within a year

• Assets should be valued at liquidation prices

• Liabilities should be written off immediately

Which of the following is a common reporting period?

• 7 days

• 6 months

• 12 months

• 5 years

The reporting entity assumption means

• The business is treated as separate from its owners for reporting purposes.

• Owners’ personal expenses can be included in the business accounts.

• The business must report transactions for multiple unrelated companies together.

• The business does not need to prepare financial statements.

Doubts about going concern status must be disclosed in the financial statements

• True

• False

Why is the reporting period assumption important?

• It ensures that assets are always recorded at cost

• It helps compare financial performance across different periods

• It prevents errors in bank reconciliation

• It prevents errors in bank reconciliation

Which of the following is NOT part of the reporting entity assumption?

• Business and owner’s personal finances are kept separate

• Only the business’s transactions are recorded in its accounts.

• Owner’s personal electricity bill is recorded as a business expense

• Financial statements reflect only the entity's activities

If a company is no longer a going concern, financial statements must:

• continue using normal historical cost methods

• use liquidation or fair market values

• ignore liabilities

• show only revenue

Which statement is TRUE about the reporting period assumption?

• It means financial statements must be prepared daily

• It means all expenses are recorded in the year they are paid, regardless of the period.

• It divides the business’s life into fixed intervals for measuring performance.

• It is not related to financial statements.

If the owner uses personal money to buy office supplies for the business:

• It is recorded as the business’s income

• It is ignored in the accounts

• It is recorded as the owner’s contribution (capital) to the business

• It is treated as a personal transaction