Basic Accounting Concepts: The balance sheet Flashcards
(42 cards)
How does the information need to match the relevance criterium in a balance sheet?
To match the relevance criterium the information must be meaningful and useful for the users of the financial statement
How does the information need to match the objectivity criterium in a balance sheet?
To match the objectivity criterium the information must not be by personal biases
How does the information need to match the feasability criterium in a balance sheet?
To match the feasability criterium the information must not have any complexity or cost in the implementation process
Which are the 11 basic concepts adopted by the FASB to support the general accounting principles?
- Money measurement
- Entity
- Going concern
- Cost
- Dual aspect
- Accounting period
- Conservatism
- Realization
- Matching
- Consistency
- Materiality
What does the money measurement concept stand for?
It stands for the usage of only information that can be expressed in monetary terms, whiche provides a common denominator
What is an economic entity?
Basically the business run by someone, it may be profit or non profit, an hospital, a studio or anything
What says the entity basic concept?
It says that accounts are kept for entities, separately from the personal accounting of the people that work for the entity
What does the going concern state?
It states that accounts for an entity must be kept as if it will operate for an indefinitely long period of time in the future and its resources will be used in its future operations
What does the cost concept state?
It states that evey information must be recorded by the cost at which it was bought and is not affected by the current value of the asset if it is a non monetary asset. If it is a monetary asset it should be recorded initially by their cost and subsequently by the fair value
What are the two types of asset?
Monetary and non monetary asset
What is the fair value?
It is the value at which the asset can be exchanged in a current transaction.
What is a book value?
It is the historical cost shown in an accounting record
What does the dual aspect concept state?
It states that as all assets are claimed by someone (the owner or the creditors) they are the sum of liabilities and owner’s equity and as such they have to be recorded in both assets and liabilities and owner’s equity in the balance sheet (for this reason they are equal at the end of the recording)
What are equities?
Equities are the claims of different parties against assets
What are current assets?
They are cash and other assets that are expected to be Realized in cash or Sold or Consuming during the normal operating cycle of the company or within one year
What is cash in the current assets?
Cash is funds that are readily available for distribution
What are marketable securities in the current assets?
They are ionvestments that are readily marketable and are expected to be converted in cash within one year
What are accounts receivable in the current assets?
They are amounts owed to the entity by its customers
What are inventories in the current assets?
They are items ready for sale, in process of production or soon to be consumed
What are prepaid expenses in the current assets?
They are assets, usually of intangible nature, whose usefulness will expire in the near future, such as insurance policies
What types of non current assets exist?
Plant, property and equipment and other assets
What are plant, property and equipment?
They are tangible assets that are relatively long lived and used to produce goods and services that will generate future cash inflows
What is accumulated depreciation in the property, plant and equipment voice?
It is a portion of the original cost of the asset that is written off and allocated as a cost of doing business
What are investments in other assets?
They are securities of one company owned by another in order to either control the company or in anticipation of earnings for a long-term return from the investment
