![]() ![]() ![]() Other businesses may be combined for financial reporting because they have the same ownership – it depends on the business entity assumption that is being made.Įconomic activity is measured in U.S. Two businesses that may be closely related may need to be accounted for separately because they have different ownership. This is so important because transactions that affect the separate owners of a business and not the business itself will be left out of our accounting for the business. To guide accountants in providing relevant and reliable information, the following more specific assumptions and principles are used in most situations:Īn understanding is needed of what business entity is providing the financial information to decision makers. To summarize and report the information, the cost to find and calculate the information cannot be greater than the benefit of that information and amounts need to be material (as discussed earlier in this chapter).To be reliable, financial statements and the amounts they show must be verifiable, free from error (at least close) and neutral (not favoring one decision over another).To be relevant, financial information must be timely (cannot be too old) and provide information needed to either evaluate past performance or predict future performance. ![]()
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