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Horngren'S Financial And Managerial Accounting
Found in: Page 32

Short Answer

Financial statements in the United States are reported in U.S. dollars. What assumption supports this statement?

Monetary Unit Assumption supports this statement.

See the step by step solution

Step by Step Solution

Step 1: Explanation on monetary unit assumption

As per the monetary term assumption, items of financial statements should be reported as per the monetary unit.

Step 2: Explanation of case

In the given case, the financial statement is prepared in the United States, and dollar is used in the U.S.; hence as per the monetary unit assumption, items of the financial information should be reported in terms of dollars (monetary unit).

Most popular questions for Business-studies Textbooks

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving $30,000 cash. 2 Deposited the $30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited $89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid $600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, $8,000, within three months. 9 Received $2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, $300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, $8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, $900. 31 Received $2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows

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