5 Flashcards
it refers to primary users and other users. Primary users refer to existing and potential investors, lenders and other creditors. In contrast, other users refer to employees, customers, governments and their agencies, and the public.
USERS
information about the entity’s economic resources(assets) and the claims (liabilities and equity) against the reporting entity at a particular moment in time.
Financial position
is the availability of cash in the near future to cover currently maturing obligations.
Liquidity
is the availability of cash over the long term to meet financial commitments when they fall due.
Solvency
comprises revenue, expenses and net income or loss for a period of time.
Financial Performance
are the qualities or attributes that make financial accounting useful to the users.
Qualitative characteristics
relate to the content or substance of financial information. It has two characteristics namely, relevance and faithful representation.
Fundamental qualitative characteristics
is the capacity of the information to influence a decision.
Relevance
is also known as the doctrine of convenience.
Materiality
the financial reports represent economic phenomena or transaction in words and number.
Faithful representation
requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication. It is the result of principle of adequate disclosure.
Completeness
all significant and relevant information leading to the preparation of financial statements shall be clearly reported.
Standard of adequate disclosure
the information is free from bias.
Neutrality
means that there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.
Free from error
relate to the presentation or form of the financial information.
Enhancing Qualitative Characteristics
means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.
Verifiability
means the ability to bring together the points of likeness and differences.
Comparability
refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.
Consistency
requires that financial information must be comprehensible or intelligible if it is to be most useful.
Understandability
means that financial information must be available or communicated early enough when a decision is to be made.
Timeliness
refer to the quantitative information reported in the balance sheet and income statement(IS). Probable means that the chance if the future economic benefit arising is more likely rather than less likely.
Elements of financial statements
is recognized in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably.
Asset
is recognized in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.
Liability
is the residual interest in the assets of the entity after deducting all its liabilities.
Equity
is recognized in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.
Income
are recognized in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.
Expenses
represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity.
Losses
is a term which means the reporting of an asset, liability, income or expense on the face of the financial statements of an entity.
Recognition
arises in the course of ordinary regular activities like sales, fees, interest, dividends, royalties and rent.
Revenue
arises other than the course of ordinary regular activities like gains include gain from disposal of noncurrent assets and unrealized gain on trading securities to mention a few.
Gains
is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the statement of financial position and income statement.
Measurement
is the amount of cash or cash equivalent paid or the fair value of the consideration given to acquire an asset at the time of acquisition.
Historical cost
is the amount of cash or cash equivalent that would have to be paid if the same of equivalent asset was acquired currently.
Current cost
is the amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal.
Realizable value
is the discounted value of the future net cash inflows that the asset is expected to generate in the normal course of business.
Present value
are the basic notion or fundamental premises on which the accounting process is based. It is also known as postulates.
Accounting assumptions
in the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefinitely.
Going Concern or continuity assumption
the entity is separate from the owners, managers, ad employees who constitute the entity.
Accounting entity
requires that the indefinite life of an entity is subdivided into accounting periods which are usually of equal length for the purpose of preparing financial reports on financial position, performance and cash flows of an entity
Time period
assumes that transactions and events are measured in terms of monetary unit which are both stable and dependable
Monetary unit
