Assumptions constitute the foundation of accounting. It lays down the general principles to be followed while preparing financial statements. There are four accounting assumptions.
They are
1. Accounting Entity Assumption.
2. Money MeasurementAssumption
3. Going Concern Assumption
4. Accounting Period Assumption
1. Accounting Entity Assumption:
This concept assumes that the entity of business is different from its owners. The business is treated as a unit or entity separate from the person who control it. The proprietor is treated as a creditor to the extent of the amount invested by him on the assumption that he has given money and the business has received it.
2. Money Measurement Assumption:
According to this concept, transaction that can be measured in terms of money only are recorded in the books of accounts. This helps to record different kinds of economic activities on a uniform basis. A business may have certain events that actually influence its working but is not capable of being expressed in monetary terms and hence, not record in the books of accounts. For eg: quality of products, sales policy, efficiency of M.D., etc.
3. Going Concern Assumption:
According to this concept, the business unit is assumed to have an indefinite life. There is no intention to wind up or end the business in the near future. Thus, considering the business as a perpetual one, its records are separately kept and maintained.
4. Accounting Period Assumption:
Under this concept, the accountings are done on a day-to-day basis are analysed for a particular period to find out the net results of the business as well as the financial position on a specific date.
