Going concern

 The going concern or continuity assumption means that in the absence of evidence to the
contrary, the accounting entity is viewed as continuing in operation indefinitely the going
concern postulate is the very foundation of the cost principle.

 If there is evidence that the entity would

experience large and persistent losses or
that the entity’s operations are to be
terminated, the going concern assumption is
abandoned.

Accounting entity

 In financial accounting, the accounting entity is the specific business organization, which
may be a proprietorship, partnership or corporation.

 Under this assumption, the entity is separate from the owners, managers, and employees
who constitute the entity.

 The reason for the entity assumption is to

have fair presentation of financial
Statements.

 The personal transactions of the owners

shall not be allowed to distort the financial
statements of the entity.

 Each business is an independent accounting entity.

Time period

 A complete accurate report on the financial position and performance of an entity cannot be
obtained until the entity is finally dissolved and liquidated.

 Users of financial information need timely information for making an economic

decision.

 The time period assumption requires hat the indefinite life of an entity is subdivided into
accounting periods which are usually of
equal length for the purpose of preparing
financial reports on financial position,
performance and cash flows
 The accounting period or fiscal period is one year or a period of twelve months.

 The “one-year period” is traditionally the

accounting period because usually it is after
one year that the government reports are
required.

 The accounting period may be a calendar

year or a natural business year.

 A calendar year is a twelve-month period

that ends on December 31.
 A natural business year is a twelve-month period that ends on any month when the business
is at the lowest or experiencing
slack season.

Monetary unit

 The monetary unit assumption has two

aspects, namely quantifiability and stability
of the peso.

 The quantifiability aspect means that the

assets, liabilities, equity, income and
expenses should be stated in terms of a unit
of measure which is peso in the Philippines.

 The stability of the peso assumption means that the purchasing power of peso is stable and
constant and that its instability is
insignificant and therefore may be ignored.

 The stable peso postulate is actually an

amplification of the going concern
assumption so much so that adjustments are
unnecessary to reflect any changes in
purchasing power.

 The accounting function is to account for

nominal pesos only and not for constant
pesos or changes in purchasing power.

 There is a significant gap between historical cost and current replacement cost.

 An entity may choose the revaluation model as an accounting policy.