AOS 1 Flashcards
Period
Accounting Assumptions- financial activities are reported and recorded on for a particular period of time. Done to measure performance.
Accural basis
Accounting Assumptions- recording revenue when its earned and expenses when they’re incurred as a method of determining profit
Going concern
Accounting Assumptions- a business will continue to operate, and isn’t expected to be wound up in the near future
entity
Accounting Assumptions- requires that a business has its own financial status and a seperate position from that of its owners or other entities.
timeliness
Accounting Characteristics- providing information to users as quickly as possible so that it remains useful for decision making
understandability
Accounting Characteristics- financial information should be presented clearly and concisely so that users can easily understand it.
relevance
Accounting Characteristics- usefulness of financial information in helping users make decisions
faithful representation
Accounting Characteristics- the requirement that financial information must accurately reflect economic events.
comparability
Accounting Characteristics- the ability to compare similar types of financial information effectively with other entities or over different reporting periods
verifiability
Accounting Characteristics- the premise that financial information is supported by evidence that can be used to check its accuracy.
Assets
are present economic resources controlled by an entity. An economic resource has the potential to produce economic benefits in the future.
liabilities
are present obligations of the business entity to transfer economic resources due to an economic sacrifice made by the business
owners equity
the residual interest an owner has after liabilities are deducted from assets
revenue
an increase in assets, or decrease in liabilities that results in an increase in owners equity
expenses
a decrease in assets, or increase in liabilities that result in a decrease in owners equity
Current Assets
the classification includes cash and other economic resources that are usually help for the purpose of sale or trading. They are expected to be turned into cash, sold or consumed with 12 months from the end of the accounting period.
non current assets
usually acquired with the intentions of using them for many years and are held not for resale
Current liabilities
Classification includes all liabilities that are expected to be settled within 12 months from the end of the recording period.
non current liabilities
these are longer obligations of the business, which don’t need to be settled in 12 months.
working capital
the value of the business entities current assets minus the current liabilities.
Characteristics of T-form and narrative form balance sheets
T-form has two columns one for assets another for liabilities and owners equity. The total of each column is at the bottom of each side to easily check if it balances
Narrative form- Is a straight line. Goes from assets to liabilities to owners equity. Has the total equities and assets at the bottom.
The accounting system
- Collection of raw data/ source documents
Recorded on business documents, copies are often made by business documents and can include: receipts, cheques, invoices, EFT receipts - Recording data
Is recorded on business documents, which are known as source documents, as they are the source of financial data. They are recorded in General Journals which is used to record the daily transactions of a business. This is then transferred to ledger accounts which sorts all the transactions - Reporting of results
The three main ones are: Income statement, balance sheets and cash flow statements.
Interest only loans adv/disadv
Loans that only require a payment of interest during its lifetime with the amount borrowed in one lump sum at the end. Classified as NCL e.g construction businesses
Adv- paying less on a regular basis
Disadvantage- having to pay lump sum
Instalment loans adv and disadv
A loan that requires scheduled payments of both principal and interest throughout its lifetime.
Adv- avoids paying lump sum
Disadv- requires larger dollar amount upfront to be paid on a regular basis.
Computerised accounting system only adv and disadvantage
Adv- More accurate than humans, more efficient than manual processors, able to store large amounts of data
disadvantage- significantly more expensive than manual, must have skills to use software
