acc mids Flashcards
cost assumption
the accounting assumption that resources and services acquired by a business are recorded initially at cost as a reflection of economic value
period assumption
the assumption that the life of an entity can be divided into arbitrary equal intervals for reporting purposes.
eg: reporting sth on a yearly basis. for bigger companies the reports are usually monthly
expense
decrease in owner’s equity (except of drawings) representing the consumption of economic benefits in the form of loss in assets or increase in liabilities.
eg. salary expense
going concern
The assumption that the entity will be moving forward with their business in the upcoming year while using its assets rather than sell them.
eg. companues like google continuing on and not going bankrupt
current liabilities
obligations of the entity that are expected to be paid or satisfied within the 1 year of balance sheet date.
eg. trade creditors
depreciation expense
the portion of the non current asset that is assigned to expense over time.
eg. office or land depreciation expense
unearned revenue
pre collected money for service that will be provided to the customer in the future. initially it’s a liability but later on will be recognised as revenue once the service is done.
eg. lawyers taking money before the service
Adjusting entry
journal entries made at the end of accounting period to update or correct the account balance.
eg. charge the depreciation expense at the end of the year
operating activities
the provision of and payment of goods and services
eg. paying the supplier for goods they provided
Investing activities
The acquisition and disposal of long term assets
Financing activities
The raising of funds for an entity to carry out its operating and investing activities
eg. taking loans for the business purpose
Balance sheet
The report that shows the financial position if an entity at a specific point in time showing the assets, liabilities and equity.
assets
resources that has an economic value that the entity controls with the expectations that it will bring future benefit to the business.
eg. computers used in office by the workers for the daily work
equity
the residual interest of the owner in the assets of the entity
income statement (profit/loss statement)
reports financial performance over a specific time period.
eg. the income statement that the company makes per month
Income
Increase in economic benefits in the form of inflows or increase of assets or with the decrease of liabilities that result in equity
eg. service revenue
statement of cash flows
entity’s cash inflows or outflows over a period of time
cash method
the cash method of accounting that recognises sales only when the cash is received from the customer and recognises expense only when cash is given.
eg. if a business sells goods worth of 1000 dollars then it will only be recorded once the business receives the money
accrual basis
the cash method of accounting where the revenue and expense is recorded when they’re incurred.
for example, electricity expense that is paid at the end of the month but throughout the month the electricity expense is calculated
accounting entity assumption
the business is a separate legal entity from the owner.
faithful representation
information presented faithfully, without bias or undue error
verifiability/objectivity
different observers can come to the decision that the information faithfully represents what it claims to
t-account
financial records that use double-entry bookkeeping
running balance accounts
the sum of present debit and credit amounts after the previous day’s balance have been deducted
trial balance
financial report showing the closing balances of all accounts in the general ledger at a point in time
