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23 Cards in this Set
- Front
- Back
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What is accounting? |
Accounting is the process of identifying, measuring and communication economic information about an entity to a variety of users for decision making purposes |
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What is a business transaction? |
A business transaction is an external exchange of something i.e. payment of wages, selling/buying stock. Relevant to the business. |
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Who are the users of accounting information? |
Internal users (management) External users - Investors, suppliers, banks, employees, government authorities, consumers, regulatory bodies, community, special interest groups |
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What is financial accounting? |
Financial accounting is the preparation and presentation of financial statements to allow users (external in particular) to make economic decisions about the entity. Consists of statement of cash flows, balance sheet (statement of financial position), statement of profit or loss (Income statement), statement of changes in equity. |
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What is management accounting? |
Management accounting provides economic information for internal users that is then reflected in financial accounting statements for external users. Tends to be futuristic - budgets, projections. <Internal users can command this information> |
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Differences between financial and management accounting |
Regulations: Financial accounting - bound by GAAP (Generally Acceptable Accounting Principles) Management accounting - constructed to be of use to managers Timeliness: Financial accounting - often outdated at time issuing statements Management accounting - historical or projection Level of detail: Financial accounting - quantitative nature (represents entity as whole, consolidating different segments of business) Management accounting - quantitative or qualitative. Main users: Financial accounting - external users Management accounting - internal users |
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What is a business plan? |
Used to provide a clear formal statement of goals, direction and procedures to achieve outcomes. |
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What is IFRS? |
International Financial Reporting Standards - ensures corporations comply with internationally agreed principles, standards and codes of practice. Since Jan 1 2005, Australia has complied. |
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What is the Corporations Act (2001)? |
Enforced by ASIC (Australian Security and Investments Commission), it includes sections about a disclosing entity; accounting requirements of disclosing entity; etc. |
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What is the ASX? |
Australian Securities Exchange regulates how trading takes place on ASX. |
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What is the ACCC? |
Australian Competitor and Consumer Commission adminsters the Competition and Consumer Act (2010), and it covers anti-competitive behaviour and unfair market practices etc. Primary role is protection of the consumer. |
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What is the RBA? |
Reserve Bank of Australia is responsible for the stability of the Australian financial system and for setting monetary policy. |
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What is the ATO? |
Australian Taxation Office collects taxes and oversees all self-managed superannuation funds. |
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What is the AASB? |
Australian Accounting Standards Board issues Australian versions of International Accounting Standards. |
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What are the 3 professional bodies for accountants in Australia? |
1. CPA Australia 2. The Institute of Chartered Accountants in Australia (ICAA) |
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What is the Conceptual Framework? |
In 2010, the IASB issued a document "Conceptual Framework for Financial Reporting" which develops logical, consistent standards, provides guidance where no standards exist. |
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What are the qualitative characteristics of financial information? |
Fundamental Characteristics: Relevance - information should be relevant to the business, and relevant to time frame. Materiality - material if omission/misstatement can adversely affect user's decisions. Faithful representation - correct and free from error Enhancing characteristics: Comparability - ability to compare info over time within an entity and with other entities. Consistency - use of same methods to account for the same items from one period to the next Verifiability - different knowledgeable and independent observers could reach consensus. Understandability - users can understand reports given reasonable accounting knowledge. |
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What is an Asset? |
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity Control is the ability to say who can or can't use. Future economic benefit can be monetary. Past event. Tangible asset - fixed/physical asset Intangible asset - nonphysical asset |
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What is a Liability? |
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. |
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What is Equity? |
Residual interest in the assets of the entity after deducting all its liabilities. |
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What is Income? |
Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity. - Increase in asset, or decrease in liabilities. No capital contributions because the entity can't earn wealth through contributions with its owners. Encompasses both revenue and gains. |
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What is an Expense? |
Decreases in economic benefits duringthe accounting period in the form of outflows or depletions of assets orincurrences of liabilities that result in decreases in equity, other than thoserelating to distributions to equity. - Decrease in asset, or increase in liabilties. No drawings. |
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What are the limitations of accounting information? |
Time lag - affects accuracy Historical information - based on past data and is often outdated Subjectivity - refers to the choice of including items Cost of providing information: Costs of gathering information Release of competitive information |
