Question

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Q3. Choose two accounting assumptions and explain in your word.   

Answer 1

There are three fundamental assumptions.They areaas follows:

1)GOING CONCERN : It is the assumption that the entity will continue to operate in forseable future. There is no intention or need to close the operations of the entity.

2)ACCRUAL BASIS/MERCANTILE BASIS :In this system all incomes or expenses are recognised as and when they occur irrespective of actual cash receipt or payments.

In cash basis transactions are recorded only when receipt or payment of cash is done.

But in accrual basis transactions are recorded on happening of event even when cash is still receivable or payable.

3)CONSISTENCY:It indicates that same accounting policies are followed in the current year as was followed in previous year.

If there is any change in accounting policy or treatment , such fact should be disclosed.

The above three assumptions are always expected to be maintained and if these are followed no need to disclose separately but when these are not followed such fact should be disclosed.