Three basic accounting assumptions follow:

• Business entity is the assumption that for accounting purposes, a business exists separately from the personal holdings of its owner. The owner’s personal financial activities are not included in the reports of the business.

• Accounting period is the assumption that the life of a business is divided into specific periods of time that are covered by accounting reports. Examples of accounting periods are a month, a quarter, and a year.

• Going concern is the assumption that a business has the ability to survive and operate indefinitely unless evidence supports the fact that it cannot.