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Cornerstones of Financial Accounti...
Solutions
Cornerstones of Financial Accounti...
CORNERSTONE 2.1 Four statements are given below.
- Pewterschmidt Company values its inventory reported in the financial statements in terms of dollars instead of units
- Property, plant, and equipment is recorded at cost (minus any accumulated depreciation) instead of liquidation value.
- The accounting records of a company are kept separate from its owners.
- The accountant assigns revenues and expenses to specific years before preparing the financial statements.
Required:
Give the accounting assumption that is most applicable to each of the statements.
Concept Introduction:
Monetary Unit assumption- It states that only those business events are recorded as transactions in accounting statements which can be measured in monetary terms. This means that those business events which cannot be expressed in terms of money are not recorded in financial statements.
Requirement 1:
To specify the accounting assumption that is most suitable when Pewterschmidt company values its inventory reported in financial statements in terms of dollars instead of units.
In this case, Pewterschmidt company values its inventory in financial statements in terms of dollars instead of units...
Concept Introduction:
Going Concern Assumption: An entity is assumed to be a going concern if it continues its business for a foreseeable future. It is an important because many other accounting principles are based on this assumption that the company will continue its operations for a long period.
Requirement 2:
The most suitable accounting assumption when property, plant and equipment is recorded at cost (minus any accumulated depreciation) instead of liquidation value.
Concept Introduction:
Economic entity assumption: This assumption separates the transactions recorded by a business entity from its owners. It means that accounting records of a business entity should pertain its business operations only.
Requirement3:
The most appropriate assumption when the accounting records of a company are kept separate from its owners.
Concept Introduction:
Time-period assumption- Under this assumption, a business should record its financial events over a standard time-period which is either monthly, quarterly or annually.The implication of this assumption is that judgements on financial statements can be made at the end of a specific time-period.
Requirement 4:
To provide the appropriate accounting assumption when the accountant assigns revenues and expenses to specific years before preparing the financial statements.
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