Define Accounting Theories Flashcards
Accounting Entity Theory
The activities of a business are separate from the actions of the owner. All transactions recorded from the POV of the business
Accounting Period Theory
The life of a business is divided into regular time intervals
Accrual Basis Of Accounting Theory
Business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period.
Consistency Theory
Once an accounting theory method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison.
Going Concern Theory
A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down.
Historical Cost Theory
Transactions should be recorded at their original cost
Matching Theory
Expenses incurred must be matched against income earned in the same period to determine the profit for that period.
Materiality theory
A transactions is considered material if it makes a difference to the decision making process.
Monetary Theory
Only business transactions that can be measured in monetary terms are recorded
Objectivity theory
Accounting information recorded mut be supported by reliable and verifiable evidence so that financial statements will be free from bias and opinions
Prudence Theory
The accounting treatment s=chosen should be the one that least overstates assets and profits and least understates liabilities and losses.
Revenue recognition theory
Revenue is earned when goods have been delivered or services have been provided.
