Question

E3-1 Explain the time period assumption. (LO 1) Ian Muse has prepared the following list of statements about the time period assumption. Adjusting entries would not be necessary if a company's life were not divided into artificial time periods. The IRS requires companies to file annual tax returns. Accountants divide the economic life of a business into artificial time periods, but each transaction affects only one of these periods. Accounting time periods are generally a month, a quarter, or a year. A time period lasting one year is called an interim period. All fiscal years are calendar years, but not all calendar years are fiscal years. Instructions Identify each statement as true or false. If false, indicate how to correct the statement.

Answer 1

(E3-1) Time period assumption is an accounting assumption which states that time can be divided into distinct and consecutive periods. And all the accounting records can be allocated to these periods. It is one of a number of fundamental accounting assumption that is common to cash basis accounting or accrual basis accounting. If time cannot be divided into distinct periods, the accountant cannot record transactions in separate time periods.

(LO 1)

Adjusting entries would not be necessary if a company's life were not divided into artificial time periods. - True.

The IRS requires companies to file annual tax returns. - True

Accountants divide the economic life of a business into artificial time periods, but each transaction affects only one of these periods. - False because there can be transactions which can affect one or more time periods.

Accounting time periods are generally a month, a quarter, or a year. - True

A time period lasting one year is called an interim period. - False. A time period lasting for less than one year is called an interim period.

All fiscal years are calendar years, but not all calendar years are fiscal years. - False. A fiscal year may not be same as calender year.