ASSUMPTIONS AND PRINCIPLES Presented below are the four assumptions and four principles used in measuring and reporting accounting information.

Assumptions Principles Economic entity Historical cost Continuity (going-concern) Revenue recognition Time-period Matching Monetary unit Conservatism Required:

Identify the assumption or principle that best describes each situation below.

a. Specifies that revenue should only be recognized when earned and realized

b. Requires that an activity be recorded at the exchange price at the time the activity occurred

c. Allows a company to report financial activities separate from the activities of the owners

d. Implies that items such as customer satisfaction cannot be reported in the financial statements

e. Requires that expenses be recorded and reported in the same period as the revenue that it helped generate

f. Justifies why some assets and liabilities are not reported at their value if sold g. Allows the life of a company to be divided into artificial time periods so accounting reports can be provided on a timely basis h. Is a prudent reaction to uncertainty Exercise