Week 2 (The elements of accounting)

Question 1

Assumption, concepts and principles

Answer 1

• monetary principle: same exchange
• Accounting entity: Business records must be separate to owner’s personal records
• Accounting period: 1st of july to 30th of june
• Going concern: shutting down you have to report differently
• Historical cost: worth how much you paid
• Full disclosures: transparent

Question 2

Qualitative characteristics

Answer 2

Fundamental
- Relevance
- Faithful representation
Enhancing
- Understandability
- Comparability
- Timelessness
- Verifiability

Question 3

Who sets accounting standards

Answer 3

AASB standards (Australia) are aligned with international accounting standards IASB.

Question 4

The accounting elements

Answer 4

Assets
Liabilities
Equity
Income
Expense

Question 5

Assets

Answer 5

Present economic resources which are controlled by the entity, with potential to produce economic benefit

Question 6

Liabilities

Answer 6

A present obligation of the entity to transfer economic resource as a result of past events

Question 7

Equity

Answer 7

The residual interests in the assets of the entity after deducting all its liabilities

Question 8

Income

Answer 8

Increases in assets or decreases in liabilities

Question 9

Expenses

Answer 9

Decreases in assets or increases in liabilities

Question 10

Recognition criteria

Answer 10

An item should be recorded if:
- Relevance
- Faithfully represented

Question 11

Recognition vs disclosure

Answer 11

• An item is recognised if it meets both these criteria
• An item is disclosed if it meets the definition but not the recognition criteria