The Continuity Assumption states that a business will continue to operate for at least 12 months, if not indefinitely. The financial statements are built around the assumption that the business will exist in the future, unless stated differently. If a business will not continue to operate, it would be difficult for someone to figure out the resale value of the products. There is also no guarantee that their products would even be sold.
The Unit-of-Measure Assumption sets up the guideline that a United States business is allowed to use US dollars in their financial statements. This obviously does not just apply to the United States; every country can use their individual currency for their financial statements.
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The Separate Entity Assumption states that a transaction carried out by an owner, is separate from a transaction carried out by a business. Suppose a business owner bought truck for their own personal use, it would not be considered property of the business.
By Katie Howard
Citations:
Basic Accounting Principles
By Katie Howard
Citations:
Basic Accounting Principles
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