Accounting Terms Flashcards
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The life of the business is divided into periods of time, known as reporting periods. This is done in order to measure performance.
Accrual
Profit is calculated as revenues earned less expenses incurred during a particular period.
(Record transactions immediately when they happen, not when the cash exchange occurs)
Going Concern
The business will continue to operate and not be wound up in the foreseeable future.
Entity
The record of a business are kept separate from the owner and from the other entities
(Owner and Business have their own separate lives/bank account/records)
Timeless
Information is only valuable if it can be provided in a timely manner.
(Not records from last year)
Understandability
Information must be presented in a way that people with a reasonable knowledge of business can understand.
Relevance
Information is relevant if it has the potential to affect the decision making of users of the report
Faithful Representation
Information must faithfully represent the economic events being reported
(Accurately represent what’s occurred)
Comparability
Consistent accounting methods should be used so that differences in accounting reports can be identified and understood.
(Similar records layout from year to year)
Verifiability
Information should be represented accurately and be supported by evidence such as documents.
(Evidence that something has occurred. eg, receipt)
