Chapter 1 - Introduction to Accounting Flashcards
What are business transactions?
Are occurrences that affect the assets, liabilities and equity items in an entity and must be recognised
What is accounting?
The process of identifying, measuring and communicating economic information about an entity to a variety of users for decision-making purposes
What is relevant information?
Information that makes a differences in decision making
What is bookkeeping?
The recording and summarising of financial transactions and the preparation of basic reports
What is the process of accounting?
Identifying, measuring, communicating and decision making
What is internal users?
Managers of the entity who use the information to assist in various management functions
What are external users?
Parties outside the entity who use the information to make decisions about the entity
What is financial accounting?
The preparation and presentation of financial information for users to enable them to make economic decisions regarding the entity
What is historical cost?
The original amount paid to be received for an item
What are financial statements?
A set of statements directed towards the common information needs if a wide range of users
What is a statement of cash flows?
A statement that reports on the entity’s cash inflows and cash outflows for a specified period
What is an income statement?
Statement that reports on the income and expenses of an entity for a period, and the resulting profit or loss
What is a balance sheet?
Statement that reports on the assets, liabilities and equity of an entity at a particular point in time
What is management accounting?
A field of accounting that provides economic information for use by management in internal planning and decision making
What are the differences between financial accounting and management accounting?
- Regulations
- Timeliness
- Level of detail
- Main users
Discuss the globalisation of financial reporting
- countries adopting the IFRS
- this will meet the needs of all users as entities are becoming larger, more diversified and multinational
What is a disclosing entity?
An entity that issues securities that are quoted on a stock market or made available to the public via a prospectus
What are general purpose financial statements?
Financial statements prepared to meet the information needs common to external users
What are special purpose financial statements?
Financial statements prepared to suit a specific purpose
What are the fundamental characteristics?
Relevance and faithful representation
What are the enhancing qualitative characteristics?
Comparability, verifiability, timeliness and understandability
What is profit?
Income less expenses
What is an asset?
A resource controlled by the entity as a result of a past event and from which future economic benefits are expected to flow to the entity
What is a liability?
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
What is equity?
The residual interest in the assets of te entity after all it’s liabilities have been deducted
What is income?
Increases in economic benefits during the accounting period in the form of inflows, or decreases of liabilities that result in increases in equity
What is an expense?
Decrease in economic benefit
What are the limitations of accounting information?
Time lag, historical information and subjectivity of information
