Accounting Theory in Australia

Question 1

What are accounting principles and give 3 examples

Answer 1

• Rules of accounting that have existed for many years
  
  • Monetary: All business events can be measured in terms of money; event money must be given a money value before it can be recorded
  • Accounting Entity: A business is separate from the owner of the business; personal actions of an owner are not recorded in the accounting system
  • Accounting Period: Life of a business is divided into intervals of time known as accounting periods - can be 1 month, 6 months or 12 months

Question 2

What are AASB Accounting Standards

Answer 2

A set of rules that companies issued by the AASB, listed on the ASX and other organisations must follow when they prepare accounting reports for their owners

Question 3

3 Purposes of AASB Accounting Standards

Answer 3

• Help investors by ensuring that the accounting reports of public companies contain relevant and reliable information on the performance of the company
• Assist the directors of companies in performing their duties - director of a reporting entity must take reasonable steps to ensure financial statements accurately reflect the performance of a company
• Gives confidence to investors who want to invest their money on the ASX

Question 4

What is a reporting entity

Answer 4

An organisation that must follow the AASB standards and must prepare financial statements

Question 5

What is the objective of general purpose financial reporting

Answer 5

To provide financial info about a reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to that entity