Which one of the following is an assumption made in the preparation of financial statements?
A)Financial statements are prepared for a specific entity that is distinct from the entity owners.
B)Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit
C)Preparation of financial statements for a specific time period assumes that the balance sheet covers a period of time.
D)Market values are always assumed to be irrelevant when preparing financial statements.

Question

Quizplus · Accepted Answer

Financial statements are prepared for a specific entity, which means that they do not include personal transactions of the entity owners. This assumption is a fundamental principle of accounting and helps to ensure that financial statements provide accurate information about the financial position and performance of the entity.

Note: B is incorrect because financial statements should be prepared assuming a stable monetary unit, not assuming the impact of inflation. C is incorrect because the balance sheet covers a specific moment in time and not a period of time. D is incorrect because market values can be relevant in some cases, such as when valuing investments or inventory.

Which One of the Following Is an Assumption Made in the Preparation