accounting theories

Question 1

accounting entity

Answer 1

activities of business separate from actions of the owner. all transactions recorded in pov of business.

Question 2

accounting period

Answer 2

life of business divided into regular time intervals.

Question 3

accrual basis of accounting

Answer 3

business activities occurred, regardless of whether cash is paid or received, should be recorded in relevant accounting period.

Question 4

consistency

Answer 4

once an accounting method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison.

Question 5

going concern

Answer 5

business assumed to have an indefinite economic life unless there is credible evidence that it may close down.

Question 6

historical cost

Answer 6

transactions should be recorded at its original cost.

Question 7

matching

Answer 7

expenses incurred must be matched against income earned in same period to determine profit for the period.

Question 8

materiality

Answer 8

transaction considered material if it makes a difference to the decision-making process.

Question 9

monetary

Answer 9

only business transactions that can be measured in monetary terms are recorded.

Question 10

objectivity

Answer 10

accounting info recorded must be supported by verifiable and reliable evidence so that financial statements will be free from any opinions and biases

Question 11

prudence

Answer 11

accounting treatment chosen should be one that least overstates profits and assets and least understates liabilities and losses.

Question 12

revenue recognition

Answer 12

revenue earned when goods delivered or services provided