Which underlying assumptions serves as the basis for preparing financial statements at regular arbitrary or artificial points in time?

What is Periodicity in Accounting?

The periodicity assumption states that an organization can report its financial results within certain designated periods of time. This typically means that an entity consistently reports its results and cash flows on a monthly, quarterly, or annual basis. These time periods are kept the same over time, for the sake of comparability. For example, if the reporting period for the current year is set at calendar months, then the same periods should be used in the next year, so that the results of the two years can compared on a month-to-month basis.

Once the standard periods have been set up for financial reporting, accounting procedures are designed to support the ongoing and standardized production of financial statements for the designated periods. This means that a schedule of activities will mandate when accruals are to be posted, as well as the standard structure of the resulting journal entries.

Inconsistent Accounting Periods

It is also possible to have inconsistent periods. This situation typically arises for the two reasons noted below.

Partial Period Start or End

An entity has begun or ended its operations part way through a reporting period, so that one period has an abbreviated duration.

Four-Week Periods

A company may report its results every four weeks, which results in 13 reporting periods per year. This approach is internally consistent, but is inconsistent when the resulting income statements are compared to those of an entity that reports using the more traditional monthly period.

Standard Period Durations

The main periodicity issue is whether to produce monthly or quarterly financial statements. Most organizations produce monthly statements, if only to gain feedback on operational results on a fairly frequent basis. Publicly-held businesses are required by the Securities and Exchange Commission to issue quarterly financial statements, which they may issue in addition to monthly statements that are issued internally. From an accounting perspective, it is more difficult to produce reports for large numbers of reporting periods, because more accruals are needed to apportion business activities among the various periods.

1. The conceptual framework specifically mentions two underlying assumptions, namely

a. accrual and going concern
b. accrual and accounting entity
c. going concern and time period
d. time period and monetary unit

2. Which of the following terms best describes financial statements whose basis of accounting recognizes transactions and other events when they occur?

a. accrual basis of accounting
b. going concern basis of accounting
c. cash basis of accounting
d. invoice basis of accounting

3. The accrual basis of accounting is based primarily on

a. conservatism and revenue realization
b. conservatism and matching
c. consistency and matching
d. revenue realization and matching

4. Which of the following statements best describes the term going concern?

a. when current liabilities of an entity exceed current assets
b. the ability of the entity to continue in operation for the foreseeable future
c. the potential to contribute to the flow of cash and cash equivalents to the entity
d. the expenses of an entity exceed its income

5. Which of the following is not an implication of the going concern assumption?

a. the historical cost principle is credible
b. depreciation and amortization policies are justifiable and appropriate
c. the current and noncurrent classification of assets and liabilities is justifiable and significant
d. amortizing research and development costs over several periods is justifiable and appropriate

6.The relatively stable economic, political and social environment supports

a. conservatism
b. materiality
c. timeliness
d. going concern

7. The financial statements that are prepared for the entity are separate and distinct from the owners according to the

a. going concern principle
b. matching principle
c. economic entity assumption
d. accounting period assumption

8. Which underlying concept serves as the basis for preparing financial statements at regular intervals?

a. accounting entity
b. going concern
c. accounting period
d. stable monetary unit

9. Which of the following is not an important characteristic of the financial statements that accountants currently prepare?

a. the information in financial statements is expressed in units of money adjusted for changing purchasing power
b. financial statements articulate with one another because measuring financial position is related to measuring changes in financial position
c. the information in financial statements is summarized and classified to help meet users' needs
d. financial statements can be justified only if the benefits they provide exceed the costs

10. Which of the following statements is incorrect?

a. the accrual method, which builds directly on the revenue and matching principles, ignores the timing of cash receipts or payments in determining when to recognize revenue or expenses
b. in accordance with the unit of measure assumption, accountants normally revise the amounts to reflect the changing purchasing power of money due to inflation or deflation
c. in accordance with the going concern assumption, the life of an entity is presumed to be indefinite
d. accountants prepare financial statements at arbitrary points in time during and entity's lifetime in accordance with the accounting concept of accounting period

Answer:
1. a
2. a
3. d
4. b
5. d
6. d
7. c
8. c
9. a
10. b

"Questions are lifted from the following sources:

PHICPA, AICPA, AA,ACP,PAS, PFRS, IAS, IFRS

Which underlying assumption serves as the basis for preparing financial statements at regular?

What are the 3 underlying assumptions of financial reporting?

What are the two basic underlying assumptions that must be employed in financial statements prepared in accordance with IFRS?

What is the underlying assumption in business entity financial?