What is Accounting Theory? Principles, Assumptions, and Standards
Accounting theory consists of fundamental concepts that shape financial reporting. These include the matching principle, revenue recognition, and materiality. The matching principle ensures expenses align with related revenues, while revenue recognition defines when revenue should be recorded. Materiality determines the significance of financial information. Additionally, accounting theory incorporates principles such as historical cost, full disclosure, and going concern, ensuring businesses provide accurate financial data. These components help maintain consistency and reliability in financial statements, allowing stakeholders to make informed financial decisions.