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.