Assumptions are used to help make decisions.
This is a list of Bookkeeping Assumptions that are used to
help gain clarity of your books and balance your business.

Economic Entity – Assumption

The business is a separate entity, so the activities of a business must be
kept separate from any other financial activities of the business owners.
Example: Business and personal expenses need to be separate.

The Reliability – Assumption

It is mandatory for companies to record only accounting transactions
that can be verified through invoices, billing statements, receipts
and bank statements.
Example: If you don’t have a receipt and paid in a non-trackable way (cash),
then you cannot record the item in a financial document.

Conservatism Assumption

When bookkeepers or accountants are uncertain and need to determine
how to report an item, conservatism guides them to choose the option
that show less income or asset benefit. Potential losses can be recorded,
while potential gains cannot.
Example: A potential lawsuit should be considered a loss and noted, however
a possible new gain from increased traffic due to a new business
opening nearby could not be counted as potential gain.

Monetary Unit – Assumption

One currency is used throughout all accounting activities. In the US, the
US dollar is currency used in accounting. Inflation is not a consideration
in recording finances.
Example: Land prices have increased, but no additional information other than
price paid at the time of purchase should be made.

Going Concern – Assumption

A business is stable enough to operate and meet obligations for the
foreseeable future. The business acts and makes decisions based on the
objective of continuing to run the business, rather than liquidating the
business. If a business is no longer a going concern it should report the
issues it’s having including ongoing losses, credit denial, and lawsuits.
Example: When a business is assumed to be in danger of failing in the next year due to
unpaid debts and is denied a loan to repay the debt, it is no longer a going
concern