Accounting Fundamentals Flashcards
What is cash-based accounting?
Transactions are recorded whenever there is a cash flow
How are revenues and expenses recorded under a cash-based accounting system?
Revenues are recorded when collected and expenses are recorded when paid
What are the benefits of a cash-based system?
- very easy to implement
- low cost
What are the disadvantages of a cash-based system?
The quality of the information produced in the reports is not appropriate for making decisions.
Why is the quality of information from a cash-based system not appropriate for making decisions?
There are often delays between transactions and their respective cash flows.
What is the basis of accounting required by IFRS and ASPE?
Accrual-based accounting
What is an accrual?
An accounting entry that reflects events or transactions in the period in which they occur, even if the cash receipts and payments occur in different periods.
How does accrual-based accounting records events?
when they occur rather than waiting for the cash flow
How do you provide the best quality of financial reporting for users to evaluate the true financial position of the company?
ensuring that events are recorded in the correct period
Describe what a true financial position of a company is.
It captures the amount of money owed to others and owed to the company.
Define assets.
Resources controlled by the entity resulting from past events and from which future economic benefits will flow
Define liabilities.
Present obligations of the entity arising from past events and expected to be settled by a future outflow of economic benefits.
Define equities.
The residual interest of the entity’s assets after deducting the liabilities.
Define income.
Includes both revenue and gains; revenue arises from the ordinary activities of the entity, and gains may or may not arise from the ordinary activities of the entity.
Define expenses.
Includes expenses arising from the ordinary activities of the entity and losses that may or may not arise from the ordinary course of the entity’s business.
What are the four statements required by IFRS?
- statement of financial position
- statement of profit or loss and comprehensive income
- statement of changes in equity
- statement of cash flows
What are the four statements required by ASPE?
- balance sheet
- income statement
- statement of retained earnings
- statement of cash flows
What information is on statement of financial position (balance sheet under ASPE)?
Details of the assets, liabilities, and equity for the company as at a single point in time
What information is on the statement of profit or loss and comprehensive income (income statement under ASPE)?
Details of revenue and expenses and net earnings for the period
What is included in the statement of comprehensive income?
the section for other comprehensive income items
What is the purpose of the statement of changes in equity?
reconciles the opening and closing balance for line items included in equity
What are some of the line items included in equity?
share capital, retained earnings, reserves, and non-controlling interest
What is the purpose of the statement of retained earnings?
reconciles the opening and closing balance of the entity’s retained earnings
