Write short notes on the following: Fundamental Accounting Assumptions.

Fundamental Accounting Assumptions: Fundamental accounting assumptions underlie the preparation and presentation of financial statements. They are usually not specifically stated because their acceptance and use are assumed. Disclosure is necessary if they are not followed. The Institute of Chartered Accountants of India issued Accounting Standard (AS)1on ‘Disclosure of Accounting Policies’ according to which the following have been generally accepted as fundamental accounting assumptions: 1. Going concern: The enterprise is normally viewed as a going concern, i.e. as continuing operations for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. 2. Consistency: It is assumed that accounting policies are consistent from one period to another. 3. Accrual: Guidance Note on ‘Terms used in Financial Statements’ defines accrual basis of accounting as “the method of recording transactions by which revenue, costs, assets and liabilities are reflected in the accounts in the period in which they accrue.” The accrual ‘basis of accounting’ includes considerations relating to deferrals, allocations, depreciation and amortization. Financial statements prepared on the accrual basis inform users not only of past events involving the payment and receipt of cash but also of obligations to pay cash in future and of resources that represent cash to be received in the future. Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions. Accrual basis is also referred to as mercantile basis of accounting.