Chapter 1 Flashcards
What are financial statements?
- Statement of Financial Position (SFP)
- Statement of Comprehensive Income (SCI)
- Statement of Changes in Equity (SCE)
- Statement of Cash Flows (SCF)
- Notes to the financial statements are produced but these provide further information regarding numbers in the financial statements.
What are financial statements often referred to as? and why?
“published accounts” - because they are statements that are produced and published for use by a wide range of external parties (users).
Financial statements are to be used by external parties. What is important?
That the financial statements are prepared in accordance with certain regulations (accounting standards).
Who produces the “International Accounting Standards”?
A regulatory board known as the International Accounting Standards Board (IASB)
What are the standards referred to as?
- International Accounting Standard (IAS)
- International Financial Reporting Standard (IFRS)
There is no difference between IAS and IFRS except one is older. Which one is this?
IAS (International Accounting Standards) are older.
What specific format does the financial statements follow?
Proformas
Why is it important that companies produce their financial statements in the same format?
So that that users can easily compare the information from one company to another.
How often are financial statements normally produced?
Annually
What does the reporting period refer to?
The year covered by the financial statements
What is the last day of the reporting period referred to as?
The reporting date
What is the purpose of The Statement of Financial Position (SFP)
Shows the position the company is in at the end of the reporting period.
What three key items does The Statement of Financial Position contain information about?
Assets, Liabilities, Equity
What is the purpose of The Statement of Comprehensive Income (SCI)
Shows the performance of the company during the accounting period.
What two key items does The Statement of Comprehensive Income contain information about?
Income, Expense
What is the purpose of The Statement in Changes of Equity? (SOCIE)
It shows how the figure of equity in the SFP has changed between the start of this year and the end of this year.
What is the “Framework” ?
The framework is a document that provides accountants with the basic principles to apply when producing financial statements.
What are the 5 items in the SFP and SCI known as?
“Elements of Financial Statements”
What are the 5 “Elements if Financial Statements”?
Assets, Liabilities, Equity, Income, Expenses.
What is an “Asset”?
An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
4 Examples of an Asset are?
- Property/Machinery
- Inventory (goods held to sell to customers)
- Receivables (amounts the business is owed)
- Cash
How is the presentation of an asset split?
- Non-Current Asset
- Current Asset
Define a “Current Asset”
An asset that a company intends to sell in its ordinary day to day business or that it intends to turn into cash within 12 months after the reporting date.
What are “Current Assets” primarily made up from?
- Inventories
- Receivables
- Cash
What is a “Non-Current Asset”?
An asset that is more long term in nature. Usually no intention to sell the asset as it will be used in the business to help generate profit.
Define a “Liability”
A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
2 examples of “liabilities” are?
- Trade Payables
- Loan owed to bank
How is the presentation of an liability split?
- Non-Current Liability
- Current Liability
What is a “Current Liability”?
A current liability is an amount owed within 12 months of the reporting date.
What is a “Non-Current Liability”?
A non-current liability is something owed after 12 months.
Define “Equity”
Equity is the residual interest in the assets of the entity after deducting all its liabilities. (Assets -Liabilities). It can be seen as the amount owned by the owners of an entity.
Define “Income”
Income is an increase in economic gain during the accounting period. This is usually down to an increase in assets or a decrease in liabilities. (This results in an increase of equity to the owner of an entity).
Examples of income would be?
- Sales
- Rent
- Bank Interest
Define “Expense”
Expense is a decrease in economic gain during the accounting period. This is usually down to a decrease in assets or an increase in liabilities. (This results in an decrease of equity to the owner of an entity).
Examples of expense would be?
- Purchase of goods
- Wages
- Depreciation
