POA 1.6

• Accounting entity theory states that activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business
• Accounting period theory divides the life of a business into regular time intervals or equal time periods.
• Accrual basis of accounting states that business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period.
• Consistency theory states that once an accounting method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison.
• Going concern theory assumes a business has an indefinite economic life unless there is credible evidence that it may close down.
• Historical cost theory states that transactions should be recorded at their original cost.
• Matching theory states that expenses incurred must be matched against income earned in the same period to determine the profit for that period.
• Materiality theory states that relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process.
• Monetary theory states that only business transactions that can be measured in monetary terms are recorded.
• Objectivity theory states that accounting information recorded must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases.
• Prudence theory states that the accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses.
• Revenue recognition theory states that revenue is earned when goods have been delivered or services have been provided.