Accounting Principles and Qualitative Characteristics Flashcards
Consistency
The business should use the accounting methods to allow for the comparison of reports from one period to the next.
Historical cost
Transactions should be recorded at their original purchase price, as this value is verifiable by source document evidence.
Entity
The business is separate from the owner and other entities and its records should be kept on this basis.
Reporting period
The life of the business is divided into periods of time. Records should reflect the period in which the transaction occurs.
Monetary unit
All items must be reported in the currency of the country in which the reports are prepared.
Conservatism
Losses should be recorded when probable, but gains are only recorded when certain, so that liabilities are not understated and assets are not overstated.
Going concern
The life of a business is assumed to be continuous and its records are kept on that basis.
Qualitative Characteristics 4
Red roosters ugly chickens Relevance Reliability Understandability Comparability
Relevance
Reports should include all information that is useful for decision making.
Reliability
Reports should counts in information verified by source document evidence so that it is free from bias.
Understandability
Reports should be presented in a manner that make it easy for the user to comprehend their meaning.
Comparability
Reports should be able to be matched up to each over time through the use of consistent accounting procedures.
7 Accounting Principles
CHER@MCG Consistency Historical cost Entity Reporting period Monetary unit Conservatism Going concern
Accounting principles
the generally accepted rules which govern the way accounting information is recorded
Qualitative characteristics
the qualities of the information in accounting reports that should be shown in the report.
