What assumption states that all dollar amounts in financial statements are recorded in a consistent currency?

• A. Going concern assumption
• B. Monetary unit assumption
• C. Economic entity assumption
• D. Time period assumption

Answer: (B)

The monetary unit assumption is a fundamental concept in accounting that mandates the recording of all financial transactions in a stable currency. This means that when preparing financial statements, all dollar amounts should be expressed in a consistent currency, such as U.S. dollars, euros, etc. This assumption allows for the comparison of financial data over time and across entities, providing a clear picture of an organization’s financial status without the complications that would arise from using multiple currencies or fluctuating exchange rates.

By standardizing the currency used in financial reporting, the monetary unit assumption ensures that financial statements remain relevant and comprehensible. It emphasizes the importance of using a stable measure for financial performance, which is essential for making informed economic decisions, investments, and comparisons between financial periods or different businesses.

The other assumptions mentioned serve different purposes. The going concern assumption presumes that a business will continue to operate indefinitely, the economic entity assumption separates the transactions of different entities, and the time period assumption allows organizations to report their financial performance over specific intervals. Each of these plays a critical role in accounting principles but does not pertain specifically to the consistency of currency used in financial reporting.