What do you understand by the function of ''Accounting Assumption Page'' for your UBS project?

Accounting Assumption here means that assumptions made to support accounting data that have no evidence but have been included in the computerized project. There are few assumptions made in my UBS project. Assumptions can be made through an interview with the owner of the company or from past data.

Based on the research that we carried out, there are some accounting assumptions we have made.

1. All payments to the seller are made by cash

After an interview with the owner of the company, we got to know that all the purchases of goods made by the company are paid using cash only. They have never used credit transaction for purchasing the goods. Therefore, in our transactions (journal and ledger), there is no credit terms.

2. No creditors exist

There are no creditors exist in this company because they only purchase goods in a small amount of money. Moreover, the owner said that they will go by themselves to get the goods and pay the cash immediately to purchase the goods. For example, this is similar like if we go to a supermarket to purchase goods, we will purchase the goods immediately by paying cash.

3. No debtors exist

There are no debtors exist as all the customers need to pay cash once they have cut their hair. Moreover, customers are not allowed to owe money after they have cut their hair.

4. All expenses are made by cash

All the expenses made such as internet, electricity, labour salary, rental and Indah water are paid using cash. Expenses are not allowed to be made by installment and all the expenses need to be paid on time.

5. Lack of documents

There is no documents to show that rental and labour are being paid. As the owner said that they do not have complete documents because those expenses are paid by cash.

Assumptions are traditions and customs which have been developed over a period of time and well-accepted by the profession. Accounting assumptions provide a foundation for recording the transactions and preparing the financial statements. These assumptions are held true when accountants prepare the financial statements and when users read them. In effect, accounting assumptions provide a level of foundation to help prevent misunderstandings between and among accountants and users. There are four BASIC assumptions that are considered as cornerstones of the foundation of accounting :

• Accounting entity assumption
• Money measurement assumption
• Going concern assumption
• Accounting period assumption

Accounting entity
Accounting entity assumption states that the activities of a business entity are kept separate from its owners and all other entities. In order words, according to this assumption, business unit is considered a distinct entity from its owners and all other entities having transactions with it. For example, if the owner brings in cash or any other assets, it will result in the increase in assets of the business and capital of the firm. This capital represents firm's liability to the owner. The expenses of the owner paid by the firm's assets are recorded as withdrawals from the business. This means the profit and loss account will show the revenues and expenses related to the business entity only. Thus, balance sheet will show the assets and liabilities of the business entity only. This assumption is followed in all organizations irrespective of their form.  

Money measurement

This assumption requires use of monetary unit as a basis of measurement. For example, the currency of the country where the organization is to report its operations. This implies that those transactions which cannot be measured by monetary unit will not be recorded in the books of accounts. Monetary unit is supposed to provide a common yardstick to measure the assets, liabilities and equity of the business. It also indicates that certain information is important to state the true and fair picture of the entity will not be recorded in financial accounting books if it cannot be expressed in terms of money. Examples of monetary units are the Ringgit Malaysia, pound sterling in the United Kingdom and Peso in Mexico.

Going concern assumption
The financial statements are prepared assuming that the business will have an indefinite life unless there is evidence to the contrary. The business is called ' going concern ' thereby implying that it will remain in operation in the foreseeable future unless it is to be liquidated in the near future.

These assumptions :
- Assumes that a business will continue to operate for the foreseeable future
- Allows cost and revenues to be allocated to future accounting period
- Provide more realistic value of business assets.  

Accounting period assumption
This assumption permits the accountant to divide the lifespan of the business enterprise into different time periods known as ' accounting period ' ( quarterly, half-yearly, annually) for the purpose fo preparing financial statements. Hence, financial statements are prepared for an accounting period and results thereof are reported on periodic basis.