Accounting Theories Flashcards
What is accounting theory concept?
A business is a separate entity from its owner, so all transactions are recorded in the business’ point of view.
What is the monetary concept?
Only business activities that can be measured in monetary terms are recorded.
What is accounting period concept?
Life of a business is divided into regular time intervals. Business prepares financial statements at regular intervals.
What is going-concern concept?
The business is assumed to have an indefinite economic life.
What is objectivity concept?
Transactions are recorded based on reliable and verifiable evidence to be free from opinions and biases. This is supported by source documents.
What is historical cost concept?
Transactions are recorded at their original cost.
What is prudence theory/concept?
A business must report and adjust for losses that it is likely to incur, whether or not they have been confirmed, so to avoid overstatement.
What is matching concept?
Expenses incurred must be matched against income earned in the same period.
What is accrual basis of accounting?
Business activities that have occured must be recorded in the relevant accounting period whether or not cash has been paid or received.
What is revenue recognition?
Revenue is recognised to be earned when goods have been delivered or services have been provided.
What is materiality theory?
An expenditure is classified as capital if it is not insignificant to decision making.
What is consistency theory?
Once an accounting method has been adopted, it should be applied consistently in current and future periods so that results can be meaningfully compared.
