Fundamental Accounting Assumptions

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During the preparation of the proper and final accounts for any business or any company, there are certain theoretical assumptions of accounting made that people tend to follow pretty commonly These are known as the fundamental accounting assumptions. If there aren’t any specified assumptions other than these, then it will be assumed that these principles would be implemented in the whole process of preparing the final accounts for the company. So, here the students are going to learn about these 3 fundamental accounting assumptions which are known as Going Concern, Consistency, and Accrual.

 

What Are the Fundamental Accounting Assumptions

When it comes to the three fundamental accounting assumptions, these are just some principles or concepts which are commonly assumed to be followed during the accounting transactions. These assumptions are made according to the Accounting Standards of India. Students can rely on our notes to get some information on the chapter and the topic. Here we are going to discuss some of the important assumptions of accounting that are used by the companies.

 

1. Going Concern 

Now, this is a particular assumption that is made based on a principle that states while making certain financial statements for any particular entity, people can assume that the particular company doesn’t have any particular plans for winding up and that too in the near future. So, there is an assumption made here that no matter what happens, the company will continue to exist for a long period, quite possibly indefinitely. So, the assumption of the company going strong is one of the fundamental assumptions. Now, this assumption is particularly very important because this can allow some proper and appropriate methods of accounting for the depreciation and the fixed assets as well.

 Since there is the historical method of cost valuation involved, we can safely assume that the company will not go off business for an indefinite period. In such cases, there is a need to value the assets at the market value. However, in the case of going concerned, the increase or the decrease of these assets will not be taken into consideration for sure. That is one of the most important things that the students need to keep in mind when they are discussing the 1st fundamental accounting assumption.

 

2. Consistency 

Now, this is one particular assumption that states that unless certain things are mentioned in the accounting procedures, policies, and standards, the things which are being followed properly in the accounting field would remain the same. Hence, it means that there will be some uniformity when it comes to the financial statements for the company over time. Also, the process of comparing financial statements becomes a lot easier two. This might prove to be essential for external stakeholders and potential investors who are interested in the company. 

By having the same accounting principles and treatment, management will easily be able to draw certain conclusions regarding the company’s performance in the best way. Hence, when it comes to the entire aspect of decision-making and planning for the betterment of the company, this particular assumption is to be helpful. With the help of our notes, students can get more information on the second fundamental accounting assumption.

 

3. Accrual

This is the third fundamental accounting assumption that is made by any company or business. The students will be able to gain some insight into the topic with the help of our notes and hence can score good marks in the examinations. According to this particular assumption, the different transactions of accounting are constantly being recorded in the accounting books right when they occur. Now, this is known as the mercantile system. It is just the opposite of the cash system. According to the concept of accrual, the company’s expenditure or revenue is always recognized during the year they are realized. The accrual concept also says that the revenue can be completely recognized in the year it actually has been realized. Similarly, when we are talking about expenses, it doesn’t depend on the payment of actual cash. 

We certainly hope that our notes for the fundamental accounting assumptions can help you out in the examinations. By knowing all about the fundamental assumptions, students can do their revision and ultimately use these notes to score good marks and stay on top of the class. All these notes are carefully created after thorough research of the topics and hence can be relied upon.

FAQ (Frequently Asked Questions)

1. What are the 3 Fundamental Accounting Assumptions?

Ans: The three different fundamental accounting assumptions are Going Concern, Consistency, and Accrual.

2. Are There Some Limitations to the Fundamental Accounting Assumptions?

Ans: Yes, there might be some limitations to the fundamental accounting assumptions.

Going Concern: The assumption that an entity continues indefinitely might not be practical enough. 

Consistency: This assumption is not an ideal fit during inventory valuation where several changes have to be made constantly.

Accrual: This can be pretty confusing and time-consuming.

3. When are The Fundamental Accounting Assumptions Used?

Ans: The fundamental accounting assumptions are used during the preparation of final accounts.