Proprietorship Business Transactions

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Question 1: Proficient: Discuss the effects of four of the five major accounting assumptions on the accounting process. The effects of the five major accounting assumptions that affect the accounting process are; 1. Business entity - the business entity assumes the data collected in an accounting system relates to a specific business. The Business entity concept assumes each business existence is separate from its owners, creditors’, employees, interested parties and other businesses. Under the business entity premise, the data collected is strictly about the business and not the owner. There are other forms of entities within the a corporations. For example, companies like Toyota or Ford Motors, may have several different legal entities for reporting purposes but the corporation may be consider as one business entity because they have common ownership. 2. Going-concern assumption believes a business will continue to operate unless strong evidence suggests the entity will end. The termination of an entity happens when a company crease business operations and sell it assets. Going-concern assumption is no longer valid, if a business appears likely to liquidate. Accountants often cite this assumption to justify use using actual cost rather than market cost to measure assets. 3. Money measurement relates to measuring the business economic activities in monetary terms like dollars instead of using physical terms like inches, grams, or feet. Using a common monetary unit allow accountants to report economic activities in a consistent manner. Without monetary units, it would be impossible to add things like building, equipment, and inventory to the balance sheet. Financial statements reports in monetary units to allow users to make val... ... middle of paper ... ... be the number one seller and generate revenues in excess of $500 million dollars. The company also has a patent suit that it believes it will lose for $20 million dollars. According to conservatism principles, it suggests the company report the contingent liability in the footnotes on the company’s financial statement. References Averkamp, H. (2014, January 1). Accounting Principles | Explanation | AccountingCoach. AccountingCoach.com. Retrieved May 2, 2014, from http://www.accountingcoach.com/accounting-principles/explanation Hermanson, R., Edwards, J., & Maher, M. (2010).Accounting principles: A business perspective. (Vol. 2). Textbook Equity inc. DOI: www.textbookequity.com Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.

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