Accounting Overview Flashcards
Information designed to meet the common needs of most statement users.
General Purpose
Information designed to meet the needs of a specific or a particular user.
Special Purpose
Provide helpful information about past events and help in predicting future events or in taking action to deal with possible future events.
Relevance
Provides information about past events.
Confirmatory Value
Provides predictive power regarding possible future events.
Predictive Value
The degree to which information is free from bias. Note that there are subjectivity and estimation involved in financial statements, therefore information cannot be truly “neutral.”
Neutrality
Should not exclude any transaction.
Complete
Extent to which information is reproducible given the same data and assumptions.
Verifiability
Implies that users of financial statements must be able to compare aspects of an entity at one time and over time, and between entities at one time and over time. Therefore, the measurement and display of transactions and events should be carried out in a consistent manner throughout an entity, or fully explained if they are measured or displayed differently.
Comparability
Preparers of information have classified, characterised and presented the information clearly and concisely. The financial reports are prepared with the assumption that its users have a ‘reasonable knowledge’ of the business and its economic activities.
Understandability
Available to all stakeholders in time for decision-making purposes.
Timeliness
Measures business activities, processes information into reports, and communicates the reports to decision-makers.
Accounting as an Information System
To provide quantitative financial information about a business that is useful to statement users, particularly owners and creditors, in making economic decisions.
Objective of Accounting
One that operates primarily for profit.
Business Entity
Separately identifiable combination of persons and property that uses or controls economic resources to achieve certain goals or objects and use accounting to record economic activities, process data, and disseminate information intended to be useful in making, economic decisions.
Economic Entities
Activities that affect the economic resources (assets) and obligations (liabilities) and, consequently the equity of an economic entity.
Economic Activities
The process of converting economic resources into outputs of goods and services that are intended to have greater utility than the required inputs.
Production
The process of trading resources or obligations for other resources or obligations.
Exchanges
The process of using the final output of the production process.
Consumption
The process of allocating rights to the use of output among individuals and groups in society.
Income Distribution
The process of setting aside rights to present consumption in exchange for using current rights for future consumption.
Savings
The process of using current inputs to increase the stock of resources available for output as opposed to immediate consumable output.
Investment
Refers to the process of recording the accounts or transactions of an entity, which normally ends with the preparation of the trial balance.
Bookkeeping
Consolidates financial information to make it understandable and clear for all stakeholders and helps businesses maintain timely and accurate records of their finances.
Accounting
