Accounting Theory

2. Only transactions that can be measured in dollars and cents or money terms are recorded.
5. The business entity will continue to operate for an indefinite period of time.
6. Each accounting record is supported by verifiable and reliable evidence.
7. The business is always considered to be separate and distinct from the owners who control or own the business. Transactions are recorded from the business’s point of view.
10. Reports should disclose all information that is significant to affect decision-making.
11. Revenue is recognized when it is earned regardless of whether any money is received. Expenses are recognized when they are incurred regardless whether any payments have been made.
12. Revenue is recognised when goods are sold and delivered or when services have been performed.

1. Revenue earned in a period is matched / compared to the expenses incurred in the same period to determine the correct profit or loss for that period.
3. The life span of a business can be divided into equal and regular periods for financial reporting.
4. Use of cautious or least ‘optimistic’ accounting practices by not overstating assets and profits.
8. The same accounting practices for the business should be used from one period to the next to ensure meaningful comparison of information over time.
9. All transactions are recorded at the original cost to the business.