Accounting elements Flashcards
(16 cards)
what is a current asset?
a current asset is a present economic resource controlled by entity as a result of past events that has the potential to be converted to cash, sold or consumed within the next 12 months
what is a non-current asset?
a non-current asset is an economic resource controlled by the entity as a result of past events that has the potential to produce future economic benefits beyond 12 months after the end of the reporting period.
what is a current liability?
a current liability is a present obligation of the entity to transfer an economic resource as a result of past events that are required to be settled within 12 months after the end of the reporting period
what is a non-current liability?
a non-current liability is an obligation of the entity to transfer an economic resource as a result of past events that are not required to be settled within 12 months at the end of the reporting period.
what is owner’s equity?
owner’s equity is the residual interest in the assets of the entity after deducting all its liabilities.
what is total assets?
all of the economic resources controlled by the entity as a result of past events.
what is total equities?
all of the claims on the assets of the business consisting of both liabilities and owner’s equity.
what are source documents
source documents are documents to provide both evidence that a transaction is occurred in the details of the transaction itself
what is recording
Recording involves sorting classifying and summarising the information contained in the source document so that it is more usable.
what is reporting
reporting involves the preparation of financial statements that communicate financial information to the owner so that decisions can be made
what is advice
advice is when the reports are explained carefully and the accountant provides the owner with a range of options in order for a more informed decision and better outcome for the business to occur
what is the two-fold effect of the accounting equation
every financial transaction impacts at least two accounts within the accounting equation, ensuring that assets always equal liabilities plus owner’s equity
what is the role of the balance sheet
a statement of financial position that provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time
who are the users of accounting information and what information do they require
Internal users, like owners, managers, and employees, need information to manage the business, while external users, including investors, creditors, and government agencies, use it to make decisions or assess the company’s performance.
explain the relationship between the elements of the accounting equation
The accounting equation, Assets = Liabilities + Equity, represents a fundamental relationship in accounting, stating that a company’s total assets are always equal to the sum of its liabilities and equity. This equation signifies that all a company owns (assets) are financed either by what it owes to others (liabilities) or by the owners’ investment (equity).
how to calculate owner’s equity using accounting equation
Owner’s Equity = Total Assets - Total Liabilities
