Accounting - Chapter 2

Front 1

current asset

Back 1

a resource controlled by the entity as a result of

past events, from which a future economic benefit

is expected to flow to the entity in the next 12 months

Front 2

non-current asset

Back 2

a resource controlled by the entity as a result of

past events, from which a future economic benefit

is expected to flow to the entity for more than the next 12 months

Front 3

current liability

Back 3

a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic

benefits in the next 12 months

Front 4

non-current liability

Back 4

a present obligation of the entity arising from past

events, the settlement of which is expected to result

in an outflow of resources embodying economic

benefits in more than 12 months

Front 5

Rules of double-entry accounting

Back 5

1 Every transaction will affect at least two items in the accounting equation:

a double entry.

2 After recording these changes, the accounting equation must still balance.

Front 6

Explain why the accounting equation must be redrawn after every transaction.

Back 6

A business engages in activities every day, and when it exchanges goods/services with another entity, at least two items will change in it's accounting equation.

Front 7

Explain one benefit of classifying the balance sheet

Back 7

With current and non-current items identified, the balance sheet now has more Relevance for decision-making. eg. the owner can compare current assets against current liabilities to assess the firms ability to meet short term debts.

Front 8

Explain the relationship between the accounting equation and the balance sheet.

Back 8

The balance sheet details the firms assets, liabilities and owners equity at a particular point in time and is a reflection of the firms accounting equation.