Poa Theories Flashcards
Accounting entity theory
States that activities of business is separate from actions of owner
Monetary theory
States that only business transactions that can be expressed in monetary terms are recorded in the books
Objectivity theory
States evidence transaction has occuredHis
Historical Cost theory
Transaction is recored at original cost incurred
Going concern theory
Business is assumed to operate for an indefinite amount of time
Accounting period theory
State that financial statements are prepared at regular time intervals to provide timely information for stakeholders and decision making
Revenue recognition theory
Revenue is only recognised once goods have been delivered or sold
What is accrual basis of accounting
Regardless whether payment has been made or not transaction should be recorded in is relevant accounting period
Matching theory
States that expense incurred must be matched against income earned in the same accounting period to determine the profit for that period
Prudence theory
States that to avoid overstating assets, income and profit while avoiding understating liabilities, expenses and loses
Materiality theory
States that relevant information should be recorded in the financial statements if it is likely to make a difference in the decision-making process
Consistency theory
State that once accounting method has been chosen, it should be applied to all future accounting periods to make meaningful comparisons
