The Time Period Assumption States That

question 56

Multiple Choice

The time period assumption states that

• A) a transaction can only affect one period of time.
• B) estimates should not be made if a transaction affects more than one time period.
• C) adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
• D) the economic life of a business can be divided into artificial time periods.

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Definitions:

Closing Rate

The exchange rate at the balance sheet date, used for translating the financial statements of a foreign subsidiary into the parent company's reporting currency.

Spot Rate

The current market price at which a particular currency can be bought or sold for immediate delivery.

Reporting Period

This term refers to the specific time span for which financial statements are prepared, like a quarter or a year, to give insights into a company's financial position.

Forward Exchange Contract

A financial contract between two parties to exchange currencies at a predetermined future date and rate, used to hedge against foreign exchange risk.