POA@HGV_Grace_Accounting Theories_Definition

The business and the owner are separate entities and transactions are recorded from the business point of view.

What accounting theory is this?

• Accounting entity theory

• Monetary theory

Only business activities that are measurable in dollars and cents can be recorded in the books of the business.

What accounting theory is this?

• Monetary theory

• Accounting period theory

The life of a business should be broken up into regular time intervals for purpose of measuring its performance and providing information to stakeholders.

What accounting theory is this?

• Accounting period theory

• Going concern theory

Transactions should be recorded at their original cost.

What accounting theory is this?

• Historical cost theory

• Consistency theory

In the absence of evidence that the business will close down in the foreseeable future, it is assumed that the business has an indefinite economic life.

What accounting theory is this?

• Going concern theory

• Historical cost theory

A business should use the same accounting methods from one accounting period to another so that there can be meaningful comparison of its accounting information from one accounting period to another.

What accounting theory is this?

• Consistency theory

• Materiality theory

A transaction is material if it makes a difference to decision-making.

What accounting theory is this?

• Materiality theory

• Objectivity theory

Accounting information must be factual and free from bias.

What accounting theory is this?

• Objectivity theory

• Prudence theory

Business must avoid overstating its assets and profits and understating its liabilities and losses.

What accounting theory is this?

• Prudence theory

• Matching Theory

Business should adjust for losses that it is likely to incur, even though the losses may not be confirmed.

What accounting theory is this?

• Prudence theory

• Matching Theory