Basic Accounting Assumption Concepts

Entity Concept

Entity Concept

A business is a separate legal entity from its owners. Financial activities of the business must be recorded separately from personal transactions.

Going Concern Concept

Assumes that a business will continue operating indefinitely, without plans to liquidate. This affects how assets and liabilities are reported.

Time Period

Divides the business's life into time intervals (months, quarters, years) for regular financial reporting, facilitating performance evaluation over time.

Monetary Concept

All financial transactions are recorded in a stable currency, providing a consistent measure for evaluating economic activity.

Accrual Concept

Revenues and expenses are recognized when earned or incurred, regardless of when cash is exchanged, giving a more accurate view of financial performance.

Consistency Concept

Requires businesses to use the same accounting methods over time, allowing for accurate comparisons and reliable financial reporting.