Accrual Accounting Flashcards
What is the primary characteristic of an accrual accounting system?
Accrual accounting depicts the effects of transactions and other events on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if cash receipts and payments occur in a different period.
This approach provides a better basis for assessing past and future performance than cash-based accounting.
What is the purpose of the Service Learning Project?
Students will deliver a workshop on financial literacy to identified populations, adapting content to address the uniqueness of that target population.
Students are expected to be knowledgeable about financial decisions and tools, not necessarily experts.
What are the evaluation components of the Service Learning Project?
- Progress Report – 2.5% (Due March 7, 2025)
- Client Evaluation – 5% (Requested following workshop delivery)
- Final Report – 7.5% (Due April 4, 2025)
The project contributes to 15% of the overall evaluation.
What is net income defined as?
Net income is increases (decreases) in assets, or decreases in liabilities, that result in increased equity, other than those relating to contributions from holders of equity claims.
It is a key element of financial performance.
What does the financial concept of capital refer to?
The financial concept of capital refers to invested money or purchasing power, synonymous with the net assets or equity of the entity.
Profit is measured by comparing net assets at the end and beginning of a period.
What is the difference between the financial and physical concepts of capital?
- Financial concept: Capital is synonymous with net assets or equity.
- Physical concept: Capital is regarded as the productive capacity of the entity.
Profit is earned based on the increase in either financial or physical capacity.
What are common issues associated with financial statements?
- Reporting Period
- Adopted Perspective
- Reporting Entity
- Recognition Lag
- Professional Judgement
These issues affect the accuracy and reliability of financial reporting.
What does recognition in accounting entail?
Recognition is the process of capturing an item that meets the definition of one of the elements of financial statements for inclusion in the financial position or performance statements.
Items not recognized must still be disclosed in the notes.
What is the most common measurement basis adopted by entities in financial statements?
Historical cost is the most commonly adopted measurement basis, often combined with other bases such as current value.
This mixed measurement model helps address changing prices of non-monetary assets.
Fill in the blank: The accounting practice is a _______ model.
mixed measurement
True or False: Accrual accounting relies solely on cash receipts and payments.
False
Accrual accounting focuses on the effects of transactions regardless of cash flow timing.
What adjustments may be made in accrual accounting?
Initially recorded figures may be subject to a variety of adjustments based on judgment and external transactions.
These adjustments are necessary to assess the overall objectivity of the transactions-based system.
What is the significance of understanding cash flow in relation to accrual accounting?
Understanding cash flow is crucial for risk analysis and helps in evaluating a company’s financial position.
Some market participants prefer cash accounting due to concerns over manipulation in accrual accounting.
What does the term ‘initial recognition’ refer to in accounting?
Initial recognition refers to the process of determining when a transaction should first be recognized in the accounts and how it should be measured.
This is essential for ensuring accurate financial reporting.
