Fundamental Accounting assumptions (FAA)
Fundamental Accounting assumptions (FAA)
There are three fundamental accounting
assumptions:
1. Going Concern
2. Consistency
3. Accrual
When nothing is written about the
fundamental accounting assumptions in the financial statements then it is
assumed that these accounting assumptions have been followed in preparation of
financial statements. It should be specifically disclosed if any of these
assumption is not followed.
Financial
statements: -The aim of accounting is to keep
records systematically to ascertain financial performance and financial
position of enterprises and communicate the relevant financial information to
management and public at large. - All enterprises prepare financial statements
like balance sheet, profit and loss account, cash flow statement by following
various concepts, principles and conventions etc. to know financial
position
Qualitative
Characteristics of financial statements:-
1. Understandability: The information in the financial statements
must be easily understandable.
2. Relevance: -Information must be relevant for decision
making need of users. -they must be able to evaluate past, present and future events.
3. Reliability:
- Information must be reliable to be useful for the need of users. it should be
free from errors and bias . user can depend upon it and can take their
decisions.
4. Comparability:- User must be able to
compare financial statement of different period to know financial position,
performance and cash flows.
5. Materiality: - Relevance of information
is affected by its materiality.
6. Faithful Representation:- Information
must be presented faithfully. the
transaction and events to be reliable for user.
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