The Life of a Business Is Divided into Equal Periods

question 25

Multiple Choice

The life of a business is divided into equal periods to determine profit or loss for that period. What assumption/concept underlies this procedure?

• A) Historical cost
• B) Monetary
• C) Accounting period
• D) Accounting entity

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Accruals

Accounting adjustments for revenues that have been earned or expenses that have been incurred but not yet recorded through daily entries.

Deferrals

Expenses or revenues that have been recorded but not yet realized. This can involve money that has been received or paid but not yet earned or incurred.

Adjusting Entries

Documentation in accounting completed at the end of a financial period to rightly assign incomes and expenses to the appropriate time.