Definitions Flashcards
(23 cards)
Qualitative characteristic:
RELIABILITY
Reports should contain information verified by source document evidence (audit trail) so that it is free from bias.
Qualitative characteristic:
RELEVANCE
Reports should include all information that is useful for decision making which includes materiality.
Qualitative characteristic:
UNDERSTANDABILITY
Reports should be presented in a manner that makes it easy for the users to comprehend their meaning (easy to understand)
Qualitative characteristic:
COMPARABILITY
Reports should be able to be matched up to each other over time through the use of consistent accounting procedures.
Accounting Principles:
CONSISTENCY
The business should use the same accounting methods to allow for the comparison of reports from one period to the next.
Accounting Principles:
HISTORICAL COST
Transactions should be recorded at their original purchase price, as this value is verifiable by source document evidence (assets).
Accounting Principles:
ENTITY
The business is separate from the owner and other entities and it’s records should be kept on this basis.
Accounting Principles:
REPORTING PERIOD
The life of a business is divided into ‘periods’ of time (max 1 year). records should reflect the ‘period’ in which the transaction occurs - (accrual accounting)
Accounting Principles:
MONETARY UNIT
All items must be recorded and reported in a common unit of measurement (currency of the country in which the reports are prepared)
Accounting Principles:
CONSERVATISM
Losses should be recorded when probable, but gains only when certain, so that liabilities are not understated and assets overstated.
Accounting Principles:
GOING CONCERN
The life of a business is assumed to be continuous and it’s records are kept on this basis.
ASSET
A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity.
CURRENT ASSET
A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity within 12 months or less.
Eg. Stock
Deptors
Cash at bank
NON-CURRENT ASSET
A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity after more than 12 months.
Eg. Tools and Equipment
Premises
Shop fittings
LIABILITY
A present obligation of the entity (as a result of past events), the settlement of which is expected to result in an outflow of economic benefits.
CURRENT LIABILITY
A present obligation of the entity (arising from past events), the settlement of which is expected to result in an outflow of economic benefits in the next 12 months.
Eg. Creditors
Bank overdraft
Loan
NON-CURRENT LIABILITY
A present obligation of the entity (arising from past events), the settlement of which is expected to result in an outflow of economic benefits sometime after the next 12 months.
Eg. Mortgage (remainder)
REVENUE
An inflow (or savings in outflows) in the form of an increase in assets (or decrease in liabilities) that increases owners equity (except for capital contributions).
Eg. Cash fees
Dividends
EXPENSE
An outflow or consumption of economic benefits (or reduction in inflows) in the form of a decrease in assets (or increase in liabilities) that reduces owners equity.
Eg. Rent
Electricity
Wages
EQUITIES
Claims on the assets of the firm, consisting of both liabilities and owners equity.
OWNERS EQUITY
The residual interest in the assets of the entity after the deduction of its liabilities.
- capital
- drawings
Difference between a CASH DEFICIT and a BANK OVERDRAFT
A cash deficit refers to the decrease in a firms bank balance, whereas a bank overdraft refers to a negative balance.
It describes a level of cash (overdraft) as opposed to a change (deficit)
Cost of Goods Sold
All costs involved in getting stock into a POSITION, CONDITION and LOCATION ready to be sold
