Question

The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the:

A. Monetary unit assumption.
B. Going concern assumption.
C. Economic entity assumption.
D. Periodicity assumption.

Answer 1

Answer:

C. ECONOMIC ENTITY ASSUMPTION

Explanation:

Economic/ Business Entity Assumption implies that : Entrepreneurs & Business or firm are two different entities. Business is a separate economic entity, & so all business transactions are recorded business (not entrepreneur) point of view. This makes evident that all business assets & liabilities are its own , not of entrepreneur. The illustrative case of entrepreneur taking out an asset from firm , is treated as 'Drawings' also signifies this.

Monetary unit assumption states inclusion of quantitative monetary evaluate-able transactions , excluding qualitative ones. Going concern assumption states that business should opereate as if not planning to shut down or scale down in very long run. Periodicity assumption states that business infinitely long life can be performance analysed by breaking it into short periods (eg - financial year) . None of these three is related to the above statement .