The basic assumptions of accounting are like foundation pillars on which the structure of accounting is based.
The following are four basic assumptions of accounting
Business entity: According to this assumption, a business is treated as a separate entity and distinct from its owners. Its books of account should record only those transactions which belong only to the firm and should not include personal transactions and activities of the owner. The personal resources of the proprietor(s) affect the accounting records of business only when there is an introduction of new capital into the business or drawings are taken out of it by them.
Money measurement: Money is used as a unit of measure to record and report all those transactions that can be measured in terms of money. In other words, the information which can not be expressed in terms of money is not included in the accounting records.
Going concern: According to this assumption, the firm is assumed to continue its operations for its foreseeable future unless there is evidence that indicates otherwise. It is assumed that the firm has neither the intention nor the necessity of liquidation or curtailing materially the scale of its operation. In this aspect, the business should continue to value all its resources at the original cost.
Accounting period: The economic life of a business can be broken down into periods of time, usually twelve months during which results can be measured. These periodic intervals are usually known as accounting periods and at the end of which an income statement and statement of financial position are prepared to show the performance and financial position.