What is the underlying assumptions on which financial statements are prepared?
Question: What is the underlying assumptions on which financial statements are prepared?
The underlying assumptions on which financial statements are prepared are the accounting principles that guide the reporting and interpretation of financial information. These assumptions include:
- The going concern assumption, which means that the business is expected to continue operating for the foreseeable future and not liquidate its assets.
- The accrual basis assumption, which means that the transactions and events are recorded in the period they occur, not when cash is exchanged.
- The monetary unit assumption, which means that the financial statements are expressed in a single currency that is stable and comparable over time.
- The economic entity assumption, which means that the business is separate and distinct from its owners and other entities, and its activities are recorded separately.
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