WK 4 Assignment.docx - Week 4 Assignment Template...

Week 4 Assignment Template
Accounting Theory and Merchandising Accounting
Respond to the following seven questions using grammatically correct language. Save the
document and submit it in the courseroom
.
1. Discuss the effects of all five major accounting assumptions on the accounting process.
1) Business Entity - assumes that the business and its owners, creditors,
employees, customers, interested parties and other businesses are
totally separate from one another. This treats every business’s financials
as a standalone unit.
2) Continuity - the assumption that a business will operate indefinitely,
unless strong evidence exists that the business will terminate. This helps
to measure assets based on historical costs and depreciation rather than
their current market value. A company that uses its assets for operations
will not place much value on the short-term value of selling them.
3) Money Measurement - using monetary units of measurement rather
than a physical unit. By doing this, it allows a common unit of
measurement to be present across different businesses when recording
the transactions.
4) Stable Dollar - the assumption that the unit of measurement, the dollar,
will stay valued at the similar value regardless of inflation. This does
present a problem for depreciating assets if there has been a significant
change in the value of the dollar over the lifetime of an asset.
5) Periodicity - is the period of time that a given report has been spanned
across, i.e., a monthly report, a quarterly report, or an annual report.
2. Describe all five concepts' impact on the accounting process.
1

1) General-Purpose Statements - are relatively basic forms that can be used
for general purposes. These statements do not include an unnecessarily
detailed amount of information. They could be used for investors or for
internal company management to use in daily operations.
2) Substance Over Form - accountant’s record a transaction’s economic
substance over its legal form. This method helps place certain items that
may legally be considered an expense or liability into the category of an
asset. Because the actual substance of the transaction would be a
purchase instead of an expense.