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Four Basic Assumption
Underlie the financial accounting structure.
5
Accounting
Undergraduate 4
01/28/2011
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Term
ECONOMIC ENTITY ASSUMPTION
 Definition
  • Economic activity can be identified with a particular unit of accountability
  • A company keeps its activity separate and distinct from its owners andd any other business unit.
  • Record the company's financial  activities separate from those of its owners and managers.
  • Financial statement users need to be able to distinguish the activities and elements of different companies.
Term
Going Concern Assumption
 Definition
  • Assume that the company will have a long life
  • Booking at historical cost will be of limited usefulness if we assume eventual liquidation.
  • Depreciattion and Amortization policies are justifiable and appropriate only if we assume some permanence to the  company.
  • Only where liquidatiion appears imminent is the assuption inapplicable.
Term
MONETARY UNIT ASSUMPTION
 Definition
  • Money is relevant, simple, universally available, understandable, and useful.
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