basic definitions and accounting theories Flashcards
what is accounting entity theory?
- the activities of the business are separated from the actions of the owner.
- all transactions are recorded from the business’ point of view.
what is going concern theory?
the business is assumed to have an indefinite economic life unless there is credible evidence that it may close down.
what is accounting period theory?
the life of a business is divided into regular time intervals.
what is historical cost theory?
transactions should be recorded at their original cost.
what is monetary theory?
only transactions that can be recorded in monetary terms are recorded.
what is accrual basis of accounting theory?
revenues and expenses are recorded as earned and incurred as they take place in the accounting period.
what is matching theory
expenses incurred must be matched against income earned in the same period to determine accurate profit for the period
prudence theory
profits and assets should not be overstated while losses and liabilities should not be understated
