What do you understand about the function of "Accounting Assumption Page " for your UBS project ?

Assumptions are traditions and customs which have been developed over a period of time and well-accepted by the profession. Accounting assumptions provide a foundation for recording the transactions and preparing the financial statements. These assumptions are held true when accountants prepare the financial statements and when users read them. In effect, accounting assumptions provide a level of foundation to help prevent misunderstandings between and among accountants and users. There are four BASIC assumptions that are considered as cornerstones of the foundation of accounting :

• Accounting entity assumption
• Money measurement assumption
• Going concern assumption
• Accounting period assumption

1) Accounting entity

Accounting entity assumption states that the activities of a business entity are kept seperate from its owners and all other entities. In order words, according to this assumption business unit is considered a distinct entity from its owners and all other entities having transactions with it. For example, if the owner brings in cash or any other asset, it will result in increase in assets of the business and capital of the firm. This capital represents firm's liability to the owner. The expenses of the owner paid by the firm assets are recorded as withdrawals from the business. This means the profit and loss accont will show the revenues and expenses related to the business entity only. Thus, balance sheet will show the assets and liabilities of the business entity only. This assumption is followed in all organizations irrespective of their form. exmple partnership, cooperative,company or sole proprietorship.

2) Money measurement

This assumption requires use of monetary unit as a basis of measurement, i.e, the currency of the country where the organization is to report its operations. This implies that those transactions which cannot be measured by monetary unit will not be recorded in the books of accounts. Monetary unit is supposed to provide a common yardstick to measure the assets, liabilities and equity of the business. It also indicates that certain information, howsever important it may be to state the true and fair picture of the entity will not be recorded in financial accounting books if it cannot be expressed in terms of money. Examples of monetary units are the Ringgit Malaysia, pound sterling in the United Kingdom, Peso in Mexico.

3)Going concern assumption 

The financial statements are prepared assuming that the business will have an indefinite life unless there is evidence to the contrary. The business is called ' going concern ' thereby implying that it will remain in operation in the forseeable future unless it is to be liquidated in the near future. These assumptions :
Assumes that a business will continue to operate for the foreseeable future
Allows cost and revenues to be allocated to future accounting period
Provide more realistic value of business assets.

4)  Accounting period assumption 

This assumption permits the accountant to divide the lifespan of the business enterprise into different time periods known as ' accounting period ' ( quarterly, half-yearly, annually) for the purpose fo preparing financial statements. Hence, financial statements are prepared for an accounting period and results thereof are reported on periodic basis.