The Rule That Requires Financial Statements to Reflect the Assumption

question 2

Multiple Choice

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

• A) Going-concern assumption.
• B) Business entity assumption.
• C) Objectivity principle.
• D) Cost Principle.
• E) Monetary unit assumption.

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Definitions:

Gross Profit

The financial metric representing the difference between revenue from sales and the cost of goods sold, before deducting overheads, payroll, taxation, and interest payments.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial health.

LIFO Assumption

An inventory valuation method in which the last items purchased or produced are the first to be expensed (Last In, First Out).

Perpetual Inventory

A method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.