Accounting Framework (wk 1 lesson 1 DONE Flashcards
Accounting manages economic events
in what three basic activities?
1) identifies,
2) records
3) communicates
what is Financial Accounting?
Financial Accounting is publicly Publishing financial statements and other financial reports
What is managerial Accounting?
Information for decision making, and control of an organisation’s operations
Is Financial accounting external or internal?
Financial accounting is mainly external
what is the nature of reports for financial accounting?
The nature of reports for financial accounting are general purpose
What is the level of detail in financial accounting?
Financial accounting is a broad overview
What are the restrictions of financial accounting?
Financial accounting must follow accounting standards and other regulations
What is the reporting interval for financial accounting?
With financial accounting the reporting interval is mainly semi annual or annual
What is the time horizon for financial accounting?
Financial accounting is mainly historical
What is the range of information in financial accounting?
The range of information is quantifiable in money terms and focuses on objective and verifiable data
what is the focus of management accounting?
Management accounting is internal only
what is the nature of reports in management accounting?
the nature of reports in management accounting are specific
What is the level of detail in management accounting?
in management accounting the reports are quite detailed
What are the restrictions in management accounting?
in management accounting there are no restrictions
What is the reporting interval for management accounting?
in management accounting reports are made whenever required not annually or semi annually.
What is the time horizon for management accounting?
Management accounting focuses on both past and future in its reports
What is the range of information in management accounting?
It can contain non-financial information with less of a focus on objectivity and verifiability
Who are the internal users of accounting data?
The internal users of accounting data are:
1) marketing
2) management
3) Finance
4) Human Resources
Who are the external users of accounting data?
The external users of accounting data are:
1) Investors
2) creditors
3) government and other stakeholders
who are the two boards upholding conceptual frameworks bringing consistency to accounting concepts and practices?
1) International Accounting Standards Board (IASB) - International Financial Reporting Standards (IFRS) Europe
2) Financial Accounting Standards Board (FASB) - Generally Accepted Accounting Principles (GAAP) American
What is the definition of Assets?
Assets are a resource controlled by the entity from which future economic benefits are expected to flow to the entity.
What is the definition of a Liability?
A liability is an entity’s obligation to transfer economic benefits as a result of past events.
What is the definition of Equity?
Equity is the residual interest in the assets of an entity after deducting all its liabilities.
What is the definition of Income?
The definition of income is the Increase in equity (other than those relating to contributions from owners).
What is the definition of expenses?
The definition of expenses is the decrease in equity (other than those relating to contributions from owners).
What is the definition of a business entity?
The definition of a business entity is that a business is separate from it’s owner(s)
What is the definition of historical cost?
The definition of historical cost is that transactions are recorded at the cost when they occurred.
What is the definition of going concern?
The definition of going concern is that entity will continue in operation for the foreseeable future.
What is the definition of accruals?
The definition of accruals is that Revenue and costs must be recognised as they are earned or incurred, not as money is received or paid.
What is the definition of consistency?
The definition of consistency is that the presentation and classification of items should stay the same from one period to the next.
What is the definition of Materiality?
The definition of materiality is that Information is material if its omission or misstatement could influence the economic decision of users.
What are the 5 financial statements?
the 5 financial statements are:
1) Statement of financial position (Balance sheet)
2) Statement of profit and loss & other comprehensive income
3) Statement of changes in equity
4) Statement of cash flows
5) Accounting policies and explanatory notes
What is the objective of a financial statement?
According to IASB, financial statements is “to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions”.
What are the Fundamental Qualitative Characteristics of financial information?
Fundamental Qualitative Characteristics
-Required for information to be useful
-Include Relevance and Faithful Representation
What are the enhancing Qualitative Characteristics of financial information?
Enhancing Qualitative Characteristics
-Enhance usefulness of accounting information
-Include Comparability, Verifiability, Understandability
& Timeliness
what is the definition of relevance?
Information is relevant if it influences stakeholder decisions
what is the definition of Faithful Representation?
Faithful Representation is when Financial statements capture the economic activity of an entity. The information must be:
Complete
Neutral – freedom from bias
no significant errors
no omissions
what is the definition of comparability?
comparability Provides users with information that is readily comparable
what is the definition of verifiability?
verifiability is when Independent and knowledgeable observers should find similar results when measuring an item
what is the definition of Understandability?
Understandability is when accounting information is prepared for stakeholders with ‘reasonable understanding of business’
what is the definition of Timeliness?
Timeliness helps users make informed decisions i.e. shouldn’t be out of date
what are the three main types of profit making entity’s?
1) Proprietorship/ Sole trader
2) Partnership
3) Corporation/ Limited company
what is a Corporation/ Limited company?
A Corporation/ Limited company is:
1) Ownership divided into shares.
2) Separate legal entity organized under state corporation law
3) Limited liability
what is a Partnership?
A partnership is:
1) Owned by two or more persons
2) Often retail and service-type businesses
3) Generally unlimited personal liability
Partnership agreement
what is a Proprietorship/ Sole trader?
A Proprietorship/ Sole trader is:
1) Generally owned by one person
2) Often small service-type businesses
3) Owner receives any profits, suffers any losses, and is personally liable for all debts
What is a private Limited Company?
A private limited company is ‘Limited’ (‘Ltd’ )
A private limited company is prohibited by law from offering its shares to the public (appropriate to a family-controlled business)
What is a public Limited Company?
A public limited company has the abbreviation ‘plc’ in its title
The public limited company is permitted to offer its shares to the public. In return, it has to satisfy more onerous regulations
