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The two underlying assumptions are the going concern concept and the accruals concept:
The going concern concept is based on the principle that the entity is a going concern and will continue in operation for the foreseeable future. Therefore, unless it is known otherwise, it is assumed that the entity is not intending to close down or significantly reduce its activities.
The accruals concept is the principle that revenue and costs are recognized as they are earned and incurred not as cash is received or paid (the realization concept), and they are matched with one another (the matching concept) and dealt with in the income statement of the period to which they relate (the period concept).
