Aldhyces Kurtlynn D.

Aquino
AU-FA1-BSA1-SJ 1

GOING CONCERN ASSUMPTION

a) Going concern assumption is important, because based on my understanding this concept
provides stability and predictability in financial reporting, which helps investors and
creditors make informed decisions whether to provide funding to a business. Also it
allows businesses to continue to operate as usual even if they are experiencing financial
difficulties. If such concept does not exist, we will not be able to achieve the purpose of
accounting. Because without it businesses would not be able to perform accrued or
prepaid expenses.
Example: In 2021 a business takes out a 20 year mortgage loan for P 200,000 in order to buy a
property but the owner has no idea if the business will still be around in 20 years or if it is that he
will still be the owner.

SEPARATE ENTITY
b) Separate entity is important, because based on my understanding this concept ensured
that the financial position of the company is accurately reflected in its financial
statements. Also it allows business owners to make informed decisions about the
financial health of their company and to help protect business owners from personal
financial losses if the company goes bankrupt. If such concept does not exist, we will not
be able to achieve the purpose of accounting.
Example: Sandra owns 2 businesses a salon and a sports store. The salon has received a P 700
phone bill but the firm’s bank account is empty. However, there is P 10,000 in the sports store’s
bank account so Sandra pays it from this account.

STABLE MONETARY UNIT

c) Stable monetary unit is important, because based on my understanding this concept
assumes that the value of the dollar is stable over time. It allows accountants to disregard
the effect of inflation which is a decrease in terms of real goods of what a dollar can
purchase. Also this concept makes the process more manageable. If such concept does
not exist, we will not be able to achieve the purpose of accounting.
Example: Suppose I&A Creatives has very talented, skilled, and passionate designers and
animators. The company cannot record them as their assets under the monetary unit
 assumption. This is because the monetary unit assumption instructs the company to record
only those transactions that can be measured in monetary value in its books. The designers
and animators cannot be expressed in dollars. Similarly, an organization cannot express the
skills of an individual in dollars.

TIME PERIOD
d) Time period is important, because based on my understanding this concept is to inform
any readers about the time period for which financial statements have been prepared. It
allows accountant to measure your business performance. This enables business
organizations to stop and see how successful they have been in achieving their objectives
during a particular period of time and where improvements exists. If such concept does
not exist, we will not be able to achieve the purpose of accounting.
Example: The Meta company provides services valuing $2,500 to Beta company during the first
quarter of the year. The Beta company will pay the cash for these services next quarter.
According to time period assumption, if Meta company prepares its financial statements at the
end of the first quarter of the year, it must include this service revenue of $2,500 in its income
statement for the first quarter.