Question

In: Finance

Because of assumptions and estimates that go into the preparation of financial statements, the

Because of assumptions and estimates that go into the preparation of financial statements, the statements are inaccurate and are, therefore, not a very meaningful tool to determine the profits or losses of an entity or the financial position of an entity. Comment.

Solutions

Expert Solution

With the time period assumption, inaccuracies of accounting for the entity, short of its complete life span, are accepted. The assumption is made that the entity can be accounted for reasonably accurately for a particular period of time.  In other words, the decision is made to accept some inaccuracy because of incomplete information about the future in exchange for more  timely reporting.  The statements are considered to be meaningful because material inaccuracies are not acceptable.

 


Accounting assumes accuracy within time frames, tolerating incomplete data for timely reports, ensuring meaningful statements.

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