Accounting Fundamentals

Question 1

What is Cash-based accounting

Answer 1

Records transactions whenever there is an outflow or inflow of cash

Question 2

What is Accrual-based accounting

Answer 2

Reflects events or transactions in the period in which they occur - even if receipts and payments occur in different periods.

Question 3

What are Assets

Answer 3

Resources controlled resulting from past events and from which future economic benefits will flow

Question 4

What are liabilities

Answer 4

Present obligations of the entity arising from past events and expected to be settled by a future outflow of economic benefits

Question 5

What is equity?

Answer 5

Residual interest of the entity’s assets after deducting the liabilities (Assets - Liabilities = SE). This is also referred to as a company’s book value.

Question 6

What is income

Answer 6

Revenue and gains; arises from ordinary activities of the entity, and gains may or may not arise from the ordinary activities of the entity

Question 7

What are expenses?

Answer 7

Expenses are from ordinary activities of the entity and losses that may or may not arise from the ordinary course of the entity’s business.

Question 8

What is IFRS 1, and what are the rules?

Answer 8

First-time Adoption. When a company prepares its first set of financial statements under the new GAAP, comparative statements must also be restated and reported. For ex, for 20x5, they want to swap to a new GAAP, they must report 20x4 and 20x5 under the new GAAP.

Question 9

What is ASPE 1500, and what are the rules?

Answer 9

The exact same. Note: Both IFRS 1 and ASPe 1500 has special standards that simplify retrospective adjustments.

Question 10

What are gains?

Answer 10

Gains are increases in equity (net assets) resulting from incidental transactions. **Need to go back and paraphrase this