TOPIC 2 Flashcards
(21 cards)
What is the Monetary Principle in accounting?
Only items that can be expressed in a monetary figure can be included in accounting records.
What is the Accounting Entity principle?
Every entity can be separately identified and accounted for, allowing for accurate financial performance assessment.
What is the Accounting Period assumption?
The life of the business can be divided into artificial periods, and financial reports can be prepared for these periods.
What is the Going Concern assumption?
Financial statements are prepared assuming the business will continue operating in the foreseeable future, unless liquidation is imminent.
What is the Historical Cost principle?
Assets are initially recorded at their purchase price or cost.
What is the Full Disclosure principle?
All circumstances and events that could influence financial statement users’ decisions must be disclosed, either in the statements or accompanying notes.
What are the Fundamental Qualitative Characteristics of accounting information?
Relevance and Faithful Representation, ensuring that information is helpful for decision-making and accurately reflects the entity’s activities.
What are the Enhancing Qualitative Characteristics?
Understandability, Comparability, Timeliness, and Verifiability, which improve the decision-usefulness of accounting information.
What is the Recognition Criteria for accounting items?
An item must meet the definition of an element, be relevant, and be faithfully represented to be recognized in financial reports.
What is the difference between Recognition and Disclosure?
Recognition involves including an item in financial reports if it meets both the definition and recognition criteria. Disclosure involves including an item in notes if it meets the definition but not the recognition criteria.
What are the key elements of accounting?
Assets, Liabilities, Equity, Income, and Expenses.
What is an Asset?
A present economic resource controlled by the entity, as a result of past events, with the potential to produce a future economic benefit.
What is a Liability?
A present obligation of the entity, as a result of past events, to transfer an economic resource.
What is Equity?
The residual interest in the assets of the entity after the deduction of all its liabilities (Equity = Assets - Liabilities).
What is Income in accounting?
Increases in assets or decreases in liabilities that result in an increase in equity, other than contributions from owners.
What is an Expense?
Decreases in assets or increases in liabilities that result in a decrease in equity, other than distributions to owners.
What are the four main general purpose financial statements?
Income Statement, Statement of Changes in Equity, Balance Sheet, and Statement of Cash Flows.
What is the GAAP (Generally Accepted Accounting Principles)?
A set of principles that guide the preparation of financial statements, ensuring consistency and reliability in accounting.
What is the Conceptual Framework?
It outlines the general principles of financial reporting, providing guidance on the ‘what,’ ‘why,’ and ‘how’ of accounting.
What are Accounting Standards?
Mandatory rules for preparing financial reports, covering specific transactions like revenue recognition, inventory, and property, plant, and equipment.
What does the Corporations Act do?
It prescribes the preparation of general purpose financial statements for companies registered in Australia, ensuring compliance with accounting standards.
