Accounting Terms Flashcards
Asset
An asset is a present economic resource controlled by the entity with the potential to generate economic future benefits
Liability
A liability is a present obligation of an entity to transfer economic resources to another entity to produce economic benefits
Owner’s Equity
The residual interest an owner has in a business after liabilities are deducted from assets
period Assumption
the assumption that reports are prepared for a particular period of time, such as a month or year, in order to obtain
comparability of results
Accural Basis Assumption
the assumption that revenues are recognised when earned and expenses are recognised when incurred, so profit is calculated as revenue earned in a particular
period, less expenses incurred in that period
Going Concern Assumption
the assumption that the existing entity will
continue to operate in the future, and its records are kept on that basis
Entity Assumption
the assumption that the records of assets,
liabilities and business activities of the entity are kept completely separate
from those of the owner of the entity as well as from those of other entities
Comparibility
financial information should enable users to
identify and understand similarities in and
differences among items when compared with similar information about other entities, and with similar information
about the same entity for another period or
another date
Verifiability
financial information should allow different
knowledgeable and independent observers to reach a consensus (agree) that an event is faithfully represented
Relevance
financial information must be capable of making a difference to the decisions
made by users by helping them to form predictions and/or confirm or change
their previous evaluations
Understandibility
financial information should be understandable or comprehensible to
users with a reasonable knowledge of business and economic activities,
and presented clearly and concisely
Faithful Representation
financial information should be a faithful
representation of the real-world economic event it claims to represent: complete, free from material error and neutral (without bias)
Timeliness
financial information should be available to
decision-makers in time to be capable of influencing their decisions
Revenue
Increase in Assets or decrease in Liabilities which results in an increase in Owner’s Equity achieved y providing goods or services to customers.
An Inflow of resources to a business when it sells goods or provides services toit’s customers.
Expense
Decrease in Assets or increase in Liabilities which results in an decrease in Owner’s Equity
The economic resources (assets) under the control of a business that are lost in generating revenue.
E.g. Cash, inventory
Profit
Excess of Revenue over Expenses for a particular period of time
