Assumptions are seen as the building blocks of accounting.

Find out how the following are applied in

accounting. Accounting period and separate entity concept.

The concept of accounting period sets the beginning of the accounting period to any date and
financial data is accumulated for one year from this date. The period defines the time over which
business transactions are accumulated to financial statements. For publicly held company the period
ends at a time when the business activity is low so that there are few assets and liability to audit.
Accounting period only applies to the income statement and statement of cash flow as a balance sheet
records transaction at specific dates. Accounting period also helps starting business so that the
accounting period only spans few days this concept is also applied on terminating business.

The concept of separate entity states that business transactions and owners transactions should be
recorded separately as there is a considerable risk of the two being intermingled. This is used to
determine the business profitability and financial position. Example an owner can not extend funds to a
business without recording it as either loan or stock purchase. Failure do so the cash appears to belong
to the business.