Chapter 1 Theories Flashcards
What is the role of accounting?
Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of business.
What is the Role of accountant
Accountants prepare and provide accounting information for decision making. They do so by setting up and accounting Information system (AIS) and become stewards of businesses. Stewards are responsible for managing the resources of the business on behalf of the owners.
An ethical accountant needs to have integrity and is objective.
Explain integrity and being objective.
Integrity : An accountant with integrity is straightforward and honest in all professional relationships
objective : An accountant who is objective will not let bias, conflict of interest or undue influence of others to override his/her professional judgement.
What is Accounting entity theory?
The business is an entity separate from its owner. Only transactions of the business are to be recorded in the books.
What is Accounting period theory?
The life of the business is to be divided into regular time intervals.
What is Going concern theory?
Business is to run indefinitely unless there is credible evidence that it may close down.
What is Historical cost theory?
Transactions should be recorded at its historical cost.
What is Objectivity theory?
Accounting information recorded must be supported with reliable and verifiable evidence so that financial statements are free from errors.
What is Monetary theory?
Business is to record only transactions that can be measured in monetary terms.
What is Materiality theory?
Relevant information should be recorded in the financial statements as long as it makes a difference in the decision-making process.
What is Accrual basis of accounting theory?
Business activities that have occurred should be recorded in the relevant accounting period, regardless of whether cash is received or paid.
What is Matching theory?
Expenses incurred must be matched against income earned in the same period to determine the profit for that period.
What is Revenue recognition theory?
Revenue is earned when goods have been delivered or services have been provided.
What is Consistency theory?
Once an accounting method is chosen, the method should be applied to all future accounting periods to enable meaningful comparison.
What is Prudence theory?
Accounting treatment chosen should be one that least overstates assets and profits, and least understates liabilities and losses.
