Accounting theory

Cards (12)

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