Accounting conceps and regulation (semester 2)

Question 1

what are the primary statements

Answer 1

statement of profit or loss
statement of financial position
cash flow statement
statement of changes in equity

Question 2

statement of profit or loss

Answer 2

also known as income statement
contains income (revenue) and expenses

Question 3

what are the accounting policies

Answer 3

Summarises the rules followed in preparing the financial statements.

Based on the requirements of accounting standards.

Question 4

what are notes to the accounts

Answer 4

Provide more details about the numbers in the financial statements.

Question 5

The business entity principle:

Answer 5

It states that for the purpose of maintaining accounting records, the business should be treated as a separate and distinct from the owner(s).

Question 6

Prudence/ Conservatism :

Answer 6

It is the exercise of caution when making judgements under conditions of uncertainty to ensure assets and income are not overstated and expenses and liabilities are not understated

Question 7

Consistency:

Answer 7

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

Question 8

Materiality

Answer 8

Information is material if omitting, misstating or obscuring it could reasonably influence decisions that the primary users of financial reports make on the basis of those reports.

Question 9

Going Concern

Answer 9

It is the assumption that the business will continue to operate in the foreseeable future.
Financial statements are normally prepared on this assumption.

Question 10

Substance over form

Answer 10

It states that the financial statements and accompanying disclosures of a business should reflect the substance and economic reality and not merely their legal form.

Question 11

Principles-based regulation

Answer 11

provides general guidance or concepts.
Accounting standards are based on a conceptual framework and require the use of judgment by preparers, auditors, and regulators. Example: IFRS

Question 12

Rules-based regulation

Answer 12

provides specific set of rules with detailed guidelines and clarifications.

Accounting standards are based on a set of rules which companies must follow. Example: US GAAP
Each of these approaches has merits and demerits.*