Discussion about what is a monetary unit, economic entity, and cost assumptions are given with an example below:
Monetary unit assumption: Monetary unit assumption means that business transactions, events or accounting information are measured in terms of money.
Example: Mr. X invested in Business Tk. 3,00,000.00. Here taka is the monetary unit. The monetary unit can be any term like the dollar ($), pound, Owen or etc. On the other hand, the efficient execution of a business entity switched to another business. We have a substantial loss.
Economic Entity Assumption: The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entity.
Example: Mr. Jashim, the owner of Jahim publishers, should keep his personal living costs separate from the expenses of the Jashim publishers.
Cost Principle: This principle states that assets should be recorded at their cost.