Chapter 1 - Prinicples And Qualities Flashcards
Entity
The business is assumed to be kept separate from the owner and other businesses. Records should be kept on this basis
Accounting principles
Accounting principles are the generally accepted rules that govern the way accounting information is recorded and reports are prepared
MR C CHEG
Going concern
The life of the business is assumed to be continuous. Records should be kept on this basis
Reporting period
The life of the business should be divided into periods to allow for reports to be prepared. Records should reflect the reporting period in which the transactions occurred
Historical cost
Transactions should be recorded at their original cost. This must be verifiable by source document evidence
Conservatism
Losses should be recorded when probable but gains should be recorded when certain. This is so that liabilities and expenses are not understated and revenue and assets are not overstated.
Monetary unit
All items must be recorded and reported in the currency of the country where the reports are being prepared
Consistency
Accounting methods should be applied in a consistent manner. This ensures that reports are comparable between periods.
Qualitative characteristics
Qualitative characteristics are the qualities we would like our accounting reports to possess.
Relevance
Reports should include all information which is useful for decision making and exclude any information which is not
Reliability
Reports should contain information verified by source document evidence so that it is accurate and free from bias
Comparability
Reports should be able to be compared over time through the use of consistent accounting procedures
Understandability
Reports should be presented in a manner that makes it easy for the user to comprehend their meaning
