Chapter 2 Points

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Chapter 2 Points
2011-08-28 04:49:09

Solid Footing
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  1. Period of Time Assumption
    The same sequence of steps will be followed in the same accounting cycle within periods of time, whether they be a month, a year, or a quarter.
  2. Accrual Basis Assumption
    • Transactions are recorded even if no cash is paid out.
    • e.g. A customer buys an item in one accounting period, but pays for it in the next.
    • The sale transaction is recorded in the accounting period in which the item is sold to the customer.
  3. Entity Assumtion
    • The only transactions recorded in a business are those that are related to the business.
    • If the owners of Gray Co. put money into another company, the transaction would not be reflected in Gray Co.
  4. Monetary Unit Assumption
    • The only transactions that can be recorded in the accounting system are those that can be stated in dollars.
    • e.g. Hiring a new employee cannot be recorded.
  5. Going Concern Assumption
    • Transactions are recorded with the intent that more transactions will be recorded for the business long into the future.
    • e.g. recording the cost of inventory reflects the expectation it will be sold some time later on.
  6. Cost Principle Assumption
    • Transactions are recorded at cost, not value. Goods are not bought based on assumption of a good deal or bad deal, or at what price it can be expected to sell at.
    • e.g. buying a $25,000 Ford for $15,000 would still be recorded in the accounting system as $15,000.