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4 Cards in this Set
- Front
- Back
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PURPOSE OF ACCOUNTING |
The purpose of accounting is to provide business owners with financial information that will assist them in making decisions about the activities of their firm. |
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THE ACCOUNTING PROCESS |
The accounting process involves collecting source documents(receipts), recording financial data(cash receipt journal) and then reporting financial information(income statement) and subsequently advising the owner on an appropriate course of action(ratios). |
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ACCOUNTING PRINICIPLES (CHERMCG) |
Conservatism: losses should be recorded when probable but gains should only be recorded when certain, so that liabilities and expenses are not understated and assets and revenues are not overstated.
Historical cost: the recording of a transaction at its original cost or value, as this value is verifiable by reference to the source document. E.g. stock is valued at cost price.
Entity: the business is assumed to be separate from the owner and other businesses, and its records should be kept on that basis. E.g. capital - owner puts money into the business and drawing - vice versa which helps keep track of things.
Reporting period: the life of the business must be divided into periods of time to allow reports to be prepared. E.g. monthly, quarterly, half, yearly.
Monetary Unit: all items must be recorded and reported in a common unit of measurement; that is, Australian dollars.
Consistency: accounting methods should be applied in a consistent manner to ensure reports are comparable between periods.
Going concern: the life of the business is assumed to be continuous, and its records should be kept on that basis.
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QUALITATIVE CHARACTERISTICS (CURR) only relate to reports |
Comparability: states that reports should be comparable over time, and between different companies, through the use of accounting procedures.
Understandability: states that reports should be presented in a manner that is simple to understand.
Relevance: states that reports should include all information that is useful for decision-making, and exclude information that is not.
Reliability: states that reports should contain information that is free from bias and error, and thus can be relied upon for accuracy. |
