Accounting Foundation Flashcards
Asset
An asset is a present economic resource controlled by the entity as a result of past events that has the potential to produce future economic benefits.
Liability
A liability is a present obligation of the entity to transfer an economic resource as a result of past events.
Owner equity
Owner’s equity is the residual interest in the assets of the entity after deducting all its liabilities.
Revenue
Revenues are increases in assets or decreases in liabilities that result in increases in owner’s equity, other than those relating to contributions from the owner.
Expenses
Expenses are decreases in assets or increases in liabilities that result in a decrease in owner’s equity, other than those relating to distributions to the owner.
Accouniting entity assumption
The business is separated from the owner and other entities and its records should be kept on this basis
period assumption
The life of the business is divided into ‘period’ of time. Record should reflect the ‘period’ in which the transaction occurs
Going concern assumption
The life of a business is assumed to be continuous and its records are kept on that basis
Accrual basis
Revenue is recognised when it is earned. Expenses are recognised when they are incurred. So profit is calculated as revenue earned against in a particular period against expenses incurred in that period
Relevance
Financial information should be capable of making a differences to the decision made by users by helping them to form predictions and confirm or change their previous evaluation.
Understandability
Financial information should be understandable for comprehensible to users with a reasonable knowledge of business and economic activities, and presented clearly.
Timelessness
Financial information should be available to decision makers in time to be capable of influencing their decision
Verifiability
Financial information should ensure that different knowledgeable and independent observers can reach a consensus (agreement) that an event is faithfully represented
Faithful representation
Financial information should be a faithful representation of the real-world economic events claims to represent: complete, free from material error and neutral (without bias.
Comparability
Financial information should be able to be compared information with other similar entities for another period or another date
Account receivable turnover (ARTO)
Average Account receivable (Divide) Net Credit Sales (Plus GST) x 365
Account payable turnover (APTO)
Average Account Payable (Divide) Net Credit Purchase (Plus GST) x 365
Current asset
If they are reasonably expected to be converted to cash, sold or consumed within the next 12 months.
Non-current asset
Assets that are not held for resale and are
reasonably expected to be used for more than the next 12 months.
Current liability
if it is reasonably expected they will be settled within
12 months.
Non-current liability
Liabilities that are not required to be settled
within 12 months
User of financial information
The owner
Accounts Receivable
Accounts Payable
Taxation Office (ATO).
Rules of double-entry Accounting
Every transaction will affect at least two
items in the Accounting equation.
The Accounting equation must always
balance.
Strategies for managing account payable
Develop a strong relationship with each suppliers
Pay within credit term
Appoint an account payable officer
Strategies for managing account receivable
Develop a strong relationship with each customer
Send reminders
Appoint an account receivable officer
non-financial information
any information that cannot be found in the financial statements, and is not express in dollar or cent for eg number of customer compliant
financial information
assumptions, qualitative characteristic and elements
ethical consideration
the social and environment consequences of a financial decision
financial data
raw facts and figure upon which financial information is based
financial information
financial data that has been sorted and classified and summarised into a more usable and understandable form
Narration
explain the nature of the transaction and the source document enable the transactions to be verified.
