Accounting Foundation

Question 1

Asset

Answer 1

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.

Question 2

Liability

Answer 2

A liability is a present obligation of the entity to transfer an economic resource as a result of past events.

Question 3

Owner equity

Answer 3

Owner’s equity is the residual interest in the assets of the entity after deducting all its liabilities.

Question 4

Revenue

Answer 4

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.

Question 5

Expenses

Answer 5

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.

Question 6

Accouniting entity assumption

Answer 6

The business is separated from the owner and other entities and its records should be kept on this basis

Question 7

period assumption

Answer 7

The life of the business is divided into ‘period’ of time. Record should reflect the ‘period’ in which the transaction occurs

Question 8

Going concern assumption

Answer 8

The life of a business is assumed to be continuous and its records are kept on that basis

Question 9

Accrual basis

Answer 9

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

Question 10

Relevance

Answer 10

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.

Question 11

Understandability

Answer 11

Financial information should be understandable for comprehensible to users with a reasonable knowledge of business and economic activities, and presented clearly.

Question 12

Timelessness

Answer 12

Financial information should be available to decision makers in time to be capable of influencing their decision

Question 13

Verifiability

Answer 13

Financial information should ensure that different knowledgeable and independent observers can reach a consensus (agreement) that an event is faithfully represented

Question 14

Faithful representation

Answer 14

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.

Question 15

Comparability

Answer 15

Financial information should be able to be compared information with other similar entities for another period or another date

Question 16

Account receivable turnover (ARTO)

Answer 16

Average Account receivable (Divide) Net Credit Sales (Plus GST) x 365

Question 17

Account payable turnover (APTO)

Answer 17

Average Account Payable (Divide) Net Credit Purchase (Plus GST) x 365

Question 18

Current asset

Answer 18

If they are reasonably expected to be converted to cash, sold or consumed within the next 12 months.

Question 19

Non-current asset

Answer 19

Assets that are not held for resale and are

reasonably expected to be used for more than the next 12 months.

Question 20

Current liability

Answer 20

if it is reasonably expected they will be settled within

12 months.

Question 21

Non-current liability

Answer 21

Liabilities that are not required to be settled

within 12 months

Question 22

User of financial information

Answer 22

The owner
Accounts Receivable
Accounts Payable
Taxation Office (ATO).

Question 23

Rules of double-entry Accounting

Answer 23

Every transaction will affect at least two
items in the Accounting equation.

The Accounting equation must always
balance.

Question 24

Strategies for managing account payable

Answer 24

Develop a strong relationship with each suppliers

Pay within credit term

Appoint an account payable officer

Question 25

Strategies for managing account receivable

Answer 25

Develop a strong relationship with each customer

Send reminders

Appoint an account receivable officer

Question 26

non-financial information

Answer 26

any information that cannot be found in the financial statements, and is not express in dollar or cent for eg number of customer compliant

Question 27

financial information

Answer 27

assumptions, qualitative characteristic and elements

Question 28

ethical consideration

Answer 28

the social and environment consequences of a financial decision

Question 29

financial data

Answer 29

raw facts and figure upon which financial information is based

Question 30

financial information

Answer 30

financial data that has been sorted and classified and summarised into a more usable and understandable form

Question 31

Narration

Answer 31

explain the nature of the transaction and the source document enable the transactions to be verified.