exam Flashcards
(25 cards)
Entity
That the business and owner have separate entities and that their assets and liabilities are kept separate. If we are assessing the performance of the business, we can only include information that is relevant to the business.
Going concern
Assumes that the business will continue to operate, which allows us to record transactions that affect the future of the business. Which allows the business to recognise transactions over more the one period of time. For examples selling goods on credit they will not get the cash until a later date.
period
Reports that are prepared for a period of time like a month or a year to obtain comparability of results. The life of the business is assumed to be continuous so we can not calculate profit at the end of the business’s life.
Accrual basis
will calculate profit by subtracting expenses incurred from revenue earned in a particular reporting period.
relevance
It has to be related to an economic decision that is capable of making a difference in decisions made. it helps the business make decisions, predictions and confirm or change.
Faithful representations
That the information presented is faithful to the real world and free from any errors. This assures that the decisions being made are made without fear or being misled.
Comparability
That useful information in the financial reports are made consistently so the business has a way of comparing all reports with what is similar and different and be able to investigate the cause.
Verifiability:
Assures the business that the information presented faithfully represents what is claims to be. Ensures that different knowledgeable and independent observers can reach the same conclusion.
Timeliness
That the latest financial information is available to help with decision making.
Understandability
that the financial reports make should be understandable to the business owner or anyone else that reads the report who is not an accountant with them not being able to understand.
deprecation in an income statement
The amount that is consumed is reported in the income statement.
deprecation in a cash flow
Depreciation is not a cash transaction therefore cannot be reported into the cash flow statement.
deprecation in a balance sheet
Is recorded into three different sections. historical cost, accumulated depreciation and carrying value
Historical cost
it is its original purchase price
Accumulated depreciation
The total value of the asset that has been consumed over its life so far, the negative value has to be reported in the balance sheet to show that some of the assets value has been consumed.
Carrying value
The value of the asset that is yet to be consumed plus the residual value.
deprecation
Is the allocation of the cost of a non-current asset over its useful life.
assets
Is a resource with economic value with the expectation that it will provide a future benefit. It is to create an increase in value or benefit in the business’ operations.
expenses
The cost of operations that the company incurs to generate revenue.
liabilities
Is what is owed usually a sum of money. They are settled over time through the transfer of economic benefits.
revenue
Is the income generated from operations with it including discounts. It is an increase in assets or a deduction in liabilities which leads to an increase in owner’s equity.
why would you use fifo instead of identified cost?
when it is impossible or impractical to label each unit of inventory with its original cost. identified cost method requires each unit of inventory to be marked with its original cost which is time consuming and expensive process.
inventory loss
satisfies the definition of an expense because it decreases assets with it decreases owners equity.
benefit of inventory cards
shows what products are slow and fast moving.
