theory Flashcards
accounting entity theory
business is separated from the owner and only business transactions should be recorded in books
when should accounting entity be used ? ( 2 chapters )
1) account for drawings and capital
2) account for retained earnings and share capital
accounting period theory
life of the business is to be divided into regular time intervals
when should accounting period be used
preparation of financial statements
going concern theory
business is to continue operating unless there are valid evidences that it might close down
when should going concern be used
need for trial balance and financial statements
historical cost theory
transactions should be recorded at its historical cost
when should historical cost be used
usage of source documents
objectivity theory
accounting information recorded must be supported with reliable and verifiable evidence so that financial statements are free from errors
when should objectivity theory be used
need for source documents
monetary theory
transactions should only be recorded if it can be measured in monetary terms
when should monetary theory be used
recording of business transactions
materiality theory
relavant information should be recorded in the financial statements as long as it makes a difference in the decision-making process
when should materiality be used
accounting for capital & revenue expenditure
accrual basis of accounting
business activities that have occurred should be recorded in the relevant accounting period, regardless pid ornot
