While preparing financial statements on certain basic assumptions such as going concern, money measurement, and realization etc, they are known as:

Postulates

The correct answer is option 1- Postulates.

While preparing financial statements on certain basic assumptions such as going concern, money measurement, and realization etc, they are known as Postulates.

Financial statements are prepared on certain basic assumptions (pre-requisites) known as postulates such as going concern postulate, money measurement postulate, realisation postulate, etc. Going concern postulate assumes that the enterprise is treated as a going concern and exists for a longer period of time. So the assets are shown on historical cost basis. Money measurement postulate assumes that the value of money will remain the same in different periods. Though there is drastic change in purchasing power of money, the assets purchased at different times will be shown at the amount paid for them. While, preparing statement of profit and loss the revenue is included in the sales of the year in which the sale was undertaken even though the sale price may be received over a number of years. The assumption is known as realisation postulate.