Chapter 1 Flashcards
Accounting
The collection, recording and reporting of financial information to assist business owners in decision making.
Financial data
Raw facts and figures upon which financial information is based
Financial information
Financial data which has been sorted, classified and summarised into a more usable and understandable form
Transaction
An agreement between two parties to exchange goods or services for payment
THE ACCOUNTING PROCESS
Source documents-> recording-> Reporting-> Advice
Source documents(Accounting principle)
A piece of paper that provides both the evidence that a transaction has occurred and the details about the transaction itself.
Recording(in the accounting process)
Sorting, classifying and summarising the information contained in the source documents so that it is more usable
Reporting(Accounting process)
The preparation of financial statements that communicate financial information to the owner.
Advice(Accounting Process)
The provision to the owner of the range of options appropriate to the their aims, and recommendations as to their sustainability
Accounting principle
The generally accepted rules which govern the way accounting information is recorded
Entity(AP)
States that the business is seperate entity from the owner, and its records should be kept on this basis
Going concern(AP)
The life of the business is assumed to be continuous and it’s records are kept on this basis
Reporting period(AP)
The life of the business must be divided into ‘periods’ of time to allow reports to be prepared, and the accounting records should reflect the reporting period in which a transaction occurs
Historical cost(AP)
Transactions should be recorded at their original purchase price, as this is verifiable by a source document evidence
Consistency(AP)
the business should use the same accounting methods to allow for the comparison of reports from one period to the next.
Conservatism(AP)
Losses should be recorded when probable, but gains should only be probable when certain so that liabilities and expenses are not understated and assets and revenue are not overstated.
Monetary unit(AP)
All items must be recorded and reported in the currency of the country of location where reports are being prepared
Qualitative Characteristics
The qualities and information in the accounting reports
Relevance(QC)
Reports should include all information useful for decision-making
Reliability(QC)
Reports should contain information verifiable by source document evidence so that it is free from bias
Comparability(QC)
Reports should be able to be comparable over time through the use of consistent accounting procedures
Understandability(QC)
Reports should be presented in a manner that makes it easy for the user to comprehend their meaning
