The continuity assumption is the basis for the rule that:
A) the income statement should not include material gains and losses that are both unusual and infrequent.
B) treasury stock should not be reported in the balance sheet as an asset.
C) the cost of installing a machine should not be included in the recorded cost of the machine, but rather expensed immediately.
D) the cost of operational assets should be allocated to expense systematically and rationally over their useful lives.

Question

Quizplus · Accepted Answer

The continuity assumption assumes that a business will continue to operate in the foreseeable future. This assumption is the basis for the rule that the cost of operational assets should be allocated to expense systematically and rationally over their useful lives. This is done to ensure that expenses are matched with the revenues generated by the assets, and to provide financial statement users with a more accurate picture of a company's profitability.

The Continuity Assumption Is the Basis for the Rule That