ccounting assumptions, qualitative characteristics and accounting element Flashcards
Glossary (30 cards)
What is accounting?
The collecting and recording of financial data to produce and report financial information to assist business owners in decision-making.
What are accounting assumptions?
The generally accepted rules that govern the way Accounting information is recorded.
What does the accounting entity assumption state?
The records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner and other entities.
What is the accrual basis assumption?
The assumption that elements of reports are recognised when they satisfy definitions and recognition criteria, meaning profit is calculated as revenue earned less expenses incurred in the same period.
Define asset in accounting.
A present economic resource controlled by the entity that has the potential to produce future economic benefits.
What is a balance sheet?
An accounting report that details a firm’s financial position at a particular point in time by reporting its assets, liabilities, and owner’s equity.
What is capital contribution?
An internal source of finance consisting of cash or other assets contributed to the business from the personal assets of the owner.
What does comparability in financial reporting mean?
Useful information is provided when the financial reports of a business can be compared over time and with similar information of other businesses.
What is a credit purchase?
A transaction that involves the acquisition of materials or supplies from a supplier who does not require payment until a later date.
Define current asset.
A present economic resource that is expected to be sold, consumed, or converted into cash within 12 months after the end of the reporting period.
What is a current liability?
Obligations of the entity that are reasonably expected to be settled in the next 12 months after the end of the reporting period.
What are ethical considerations in accounting?
The social and environmental consequences of a financial decision.
What is an expense?
A decrease in assets or increase in liabilities that reduces owner’s equity.
What is meant by faithful representation in financial reporting?
The financial information reported is a faithful representation of the real-world economic event it claims to represent: complete, free from material error and neutral.
What does the going concern assumption imply?
The assumption that the business will continue to operate in the future.
What is Goods and Services Tax (GST)?
A 10% tax levied by the federal government on sales of goods and services.
Define liability in accounting.
A present obligation of the entity to transfer an economic resource.
What is a non-current asset?
A present economic resource controlled by the entity that is expected to be used for a number of years and is not held for resale.
What is a non-current liability?
Obligations of the entity that are not expected to be settled in the next 12 months after the end of the reporting period.
Define owner’s equity.
The residual interest in the assets of the entity after the liabilities are deducted.
What does the period assumption state?
Reports are prepared for a particular period of time to obtain comparability of results.
What is recording in accounting?
Sorting, classifying and summarising the information contained in the source documents.
What is relevance in financial information?
Financial information must be capable of making a difference to the decisions made by users.
What is reporting in accounting?
The preparation of financial statements that communicate financial information to the owner.
