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48 Cards in this Set
- Front
- Back
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Asset |
1. A resource controlled by the entity 2. The result of a past transaction 3. Can be reliably measured 4. Future economic benefits are likely to flow |
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Liability |
1. A present obligation of the entity 2. The result of a past transaction or event 3. Will result in the outflow of the entity's resources / benefits 4. Must be reliably measured |
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Equity |
Asset - Liability = Equity Asset = Equity + Liability The residual / left over interest in the assets of the entity, after deducting all liabilities |
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Drawings |
Money taken by the owner for personal use note. has a negative affect on equity |
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Current asset |
Can be liquidated / turned into cash within one accounting period eg. cash, investments, AR (debtors) |
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Non Current Asset |
Intend to hold onto for longer than one accounting period eg. Fixtures, equipment, land, buildings |
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Current Liability |
Obligations you expect to settle / pay withing one accounting period eg. AP (creditors), bank overdraft |
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Non Current Liability |
Obligations to be settled outside of one accounting period eg. mortgage, long term loan |
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Revenue / Income |
The result of economic benefits that flow to the entity. Eg. cash, discounts from suppliers |
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Expenses / losses |
Reduce economic benefits. Has a negative effect on equity. Eg. wages |
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Extended accounting equasion |
Assets + Expenses + Drawings = Liabilities + Equity + Revenue |
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Gross Profit |
Sales less cost of sales |
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Net Profit |
Gross profit less expenses |
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Going Concern |
The assumption that a business will continue operating into the forseeable future |
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Accounting Period |
The life of the business is divided into periods ofequal length so that profit, performance and position may be measured. |
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Accrual basis ofaccounting |
All transactions are recorded when they occur (an exchangeis made) as opposed to when cash changes hands. The balance sheet and income statement use accrual basis. |
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Cash Basis ofaccounting |
All transactions are recorded when money is received orpaid. Only one statement does this apply – the cash flowstatement. |
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Monetary Concept (is a limitation, non financial information) |
A transaction must be able to be valued reliably and a monetary value attached to it, before it can be recorded. Eg. prime location and employees cannot be reliably measured. |
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Historical Cost |
Items are usually valued at the cost you paid for them |
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Fair Value |
(Market price) The value a willing buyer would pay a willing seller |
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If your business is a going concern, what would you list your assets at? 1. Fair Value 2. Historical Cost |
2. Historical Cost |
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If your business is not a going concern, what would you list your assets at? 1. Fair Value 2. Historical Cost |
1. Fair Value |
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Accounting Entity Concept |
All transactions are recorded from the point of view of the business and not the owner. Eg. No personal assets from the owner to be listed on any financial statements. |
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Qualitative Characteristics Relevance |
The information you provide needs to be able to: 1. give feedback and also 2. allow the user to make predictions about the future and also 3. needs to be timely. |
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Qualitative Characteristics Materiality |
Where the misstatement or omission of an item has adverse effects on the decision making process. |
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Qualitative Characteristics Immaterial |
not material enough to affect a decision of users. |
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Faithful representation |
1 Needs to be complete (all transactions of theaccounting period have been recorded)· 2 Needs to be Neutral – need to be free from bias 3 Needs to be free from error. |
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Enhancing Qualitative Characteristics Comparability |
You need to be consistent in your methods year to year tomake it comparable. You need to be consistent in your methods to others in thesame industry. |
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Enhancing Qualitative Characteristics Verifiability |
different knowledgeable and independent observers reach similar conclusions ie. If I recorded all transactions to prepare a statement – an external party must be able to come to the same result. |
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Enhancing Qualitative Characteristics
Understandability |
Must be understood by a reasonable person (ie. Not classifying, columns mismatched, small font) |
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Perpetual Invenntory |
Has a cost of goods sold account Keeps a running balance of cost ofgoods sold Every sale updates cost of goodssold column |
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Periodic Inventory |
no cost of goods sold account Has purchases account - cost of goods sold calculated at period end, during stocktake |
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Sole Trader Owners? |
One Owner - Introduces all capital |
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Partnership How many owners? |
At least two owners |
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Companies How many owners / Shareholders |
Atleast one owner / shareholders (can be more) (companies act 1993) |
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Companies Accounting and / or Legal Entity? |
is a separate legal entity and a separate accounting entity |
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Companies Incorporation |
Must be registered at the companies office before it can commence business |
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Companies Liability? |
Has limited Liability The owners / shareholders can only loose what they put in But - Shareholdercan act as a guarantor then his assets can be used to satisfy the debts. |
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Companies Shareholders are paid out ......... |
Dividends |
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Sole Trader Accounting / Legal Entity? |
Is an accounting entity but NOT a legal entity |
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Sole Trader Liability? |
Has unlimited Liability The owners personal assets can be used to satisfy the company debts |
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Partnership when does the partnership act come into play? What does this mean? |
Goverened by partnership act 1908 unless a partnership agreement has been set up when the business is formed The partner ship act splits all profits etc. in half |
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Partnership Legal / Accounting Entity? |
is an accounting entity but not a legal entity |
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Partnership Liability? |
Partners have unlimited liability for all debs and are jointly and severely liable Ie. if one partner "disappears" other partners are liable for ALL debs, which can be settled using their personal assets |
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On the Income Statement what are the three types of expenses |
1. Selling and distribution expenses 2. General and Admin Expenses 3. Financial expenses |
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Financial Accounting prepared for internal or external users? displaying Past info? or forecasting? Standardized or free-formed reporting? |
Reports to External users (ie, owners, creditors) Uses Past information Standardized reporting |
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Management accounting prepared for internal or external users?Using displaying Past info? or forecasting? Standardized or free-formed reporting? |
Reports to Internal uses (ie managers of the business) Used for forecasting Free-formed reporting |
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What is a transaction |
1. an exchange 2. followed by a record of transaction with source document |
