Chapter 3, Problem 1DIE

4. The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each period. (a)This practice is based on the accounting assumption that the life of the business consists of a series of time periods and that it is possible to measure accurately the results of operations for each period. Comment on the validity and necessity of this assumption.

The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each period. (a) This practice is based on the accounting assumption that the life of the business consists of a series of time periods and that it is possible to measure accurately the results of operations for each period. Comment on the validity and necessity of this assumption. (b) What has been the effect of this practice on accounting? What is its relation to the accrual basis of accounting? What influence has it had on accounting entries and practices?

Below are the four underlying assumptions of generally accepted accounting principles. Assumptions                            Descriptions 1. Economic entity  2. Going concern 3. Periodicity 4. Monetary unit   a. A common denominator is needed to measure all business activities. b. Economic events can be identified with a particular economic body. c. In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.  d. The economic life of a company can be divided into artificial time intervals for financial reporting. Required:Match each business assumption with its description.