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Accounting Assumptions

Accounting Assumptions

The following is a list of accounting assumptions that have had an important impact on the development of generally accepted accounting principles and statements describing certain accounting practices.

A. Reporting entity

B. Going concern

C. Period of time

D. Historical cost

E. Monetary unit

F. Recognition

G. Accrual accounting

H. Revenue recognition

I. Expense recognition

J. Conservatism

Required:

Select the accounting assumption or principle that justifies each accounting practice and select the appropriate letter on each statement.

QuestionAnswer
1.To provide timely information, companies prepare and report financial statements at the end of each year.C. Period of time
2.Appropriate recognition when a company consumes economic resources in conducting business operationsI. Expense recognition
3.Accounting measurements for U.S. companies are reported in dollars.E. Monetary unit
4.The financial statements represent the business, rather than its owners.A. Reporting entity
5.In the absence of evidence to the contrary, the business can be reasonably expected to operate long enough to carry out its existing commitments.B. Going concern
6.Appropriate recognition when a company creates economic benefits (inflows of assets or settlements of obligations) by providing goods or services to customersH. Revenue recognition
7.Transactions and events are recognized initially at the exchange price to provide relevant and reliable information.D. Historical cost
8.An accounting alternative is selected that is least likely to overstate assets and income.J. Conservatism
9.The process of formally recording and reporting an item in the financial statements of a companyF. Recognition
10.The process of measuring and reporting the economic effects of transactions, events, and circumstances in the appropriate period when those effects occur, even though the cash consequences may occur in a different period
G. Accrual accounting

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