The Framework outlines two underlying assumptions of financial statements.These are:
A) fair value basis and insolvency assumption.
B) accrual basis of accounting and going concern assumption.
C) cash basis of accounting and insolvency assumption.
D) historical cost accounting and limited life concept.

Question

Quizplus · Accepted Answer

The underlying assumptions of financial statements are the accrual basis of accounting and going concern assumption. The accrual basis of accounting recognizes revenue and expenses when they are earned/incurred, regardless of when the cash is actually received/paid. The going concern assumption assumes that the business will continue to operate in the foreseeable future. These assumptions are important for financial statement users to understand when interpreting the financial information presented.

The Framework Outlines Two Underlying Assumptions of Financial Statements