Chapter 2 Points
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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.
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.
- 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.
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.
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.
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.
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