Lesson 2 Flashcards
(16 cards)
A business is separate from its owners; each entity maintains its own financial records.
Entity Concept
Only monetary transactions are recorded for quantifiable data and analysis.
Money Measurement Concept
Financial activities are divided into specific time periods for timely performance evaluations.
Periodicity Concept
Revenues and expenses are recognized when earned or incurred, regardless of cash flow.
Accrual Concept
Businesses are assumed to operate indefinitely unless proven otherwise, affecting asset and liability valuation.
Going Concern Assumption
Expenses are matched with the revenues they generate within the same accounting period for accurate profit measurement.
Matching Concept
Revenues are recorded when realized or realizable, upon transfer of goods or services.
Revenue Recognition Concept
Every financial transaction has two sides (debit and credit), balancing the accounting equation (Assets = Liabilities + Equity).
Dual Aspect Concept
Accountants anticipate all losses but no profits to avoid overstating financial health.
Conservatism Principle
Use the same accounting methods consistently over time for comparability.
Consistency Principle
Include all significant information influencing decisions; omit trivial matters.
Materiality Principle
Financial statements should provide all necessary information for stakeholders to fully understand the entity’s financial position and performance.
Full Disclosure Principle
It is the fundamental accounting equation
Assets = Liabilities + Equity.
Resources owned by a business with economic value (e.g., cash, inventory, property).
Assets
Obligations or debts owed to external parties (e.g., loans, accounts payable).
Liabilities
The residual interest in assets after deducting liabilities; represents owners’ claim on assets (includes retained earnings and capital contributed by shareholders).
Shareholder’s Equity
