When to use which Accounting Theories Flashcards
Acounting Entity Theory
When recording capital and drawings
Going Concern Theory
For continuity of business operations
Monetary theory
Only items that can be expressed in monetary terms are recorded
Accounting period theory
Accounting period must be fixed at regular intervals for meaningful comparison of accounting information
Accrual basis of accounting theory
For recording expense payable, prepaid expense, income receivable, and income received in advance.
Objectivity theory
When discussing the need for source documents
Historical Cost Theory
The need to records assets at original purchase price
Consistency Theory
The need to have same method for meaningful comparison. Typically used for depreciation method.
Materiality Theory
For distinguishing capital and revenue expenditure
Prudence Theory
For all estimations to be made
- Depn
- AFI
- Lower of cost or NRV for inv
Revenue Recognition Theory
for incomes to be recognised
Matching theory
For all expenses to be incurred