theories Flashcards
accounting entity theory
activities of the business is separate from the actions of the owner. all transactions are to be recorded from the point of view of the business.
monetary theory
only transactions that can be measured in monetary terms are recorded.
going concern theory
it is assumed that a business has an indefinite economic life unless there is credible evidence that it will close down.
accounting period theory
the life of a business is divided into regular time intervals.
objectivity theory
accounting information recorded must be supported by verifiable and reliable evidence so that the financial statements are free from opinions and biases.
materiality theory
a transaction is considered material if it makes a difference to the decision-making process.
prudence theory
the accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses.
matching theory
income earned must be matched against expenses incurred in the same period to determine profit earned for that period.
accrual basis of accounting theory
business activities that have occurred, regardless of whether cash has been paid or received, should be recorded in the relevant accounting period.
consistency theory
once an accounting method is chosen, that method should be applied to all future accounting periods to enable meaningful comparisons.
historical cost theory
transactions should be recorded at their original cost.
revenue recognition theory
revenue is earned when goods have been delivered or service has been provided.
why is there a need to record impairment loss on trade receivable?
matching theory
why is there a need to record capital and drawings?
accounting entity theory
why is there a need to record sales revenue, income receivable, income received in advance?
accrual basis of accounting theory
