Characteristics and Principles

Question 1

Relevance

Answer 1

Characteristic: Accounting reports should include all information that is useful for decision making.

Question 2

Reliability

Answer 2

Characteristic: Accounting reports should only include information that is accurate and free from error and bias.

Question 3

Understandability

Answer 3

Characteristic: Accounting reports should be presented in a manner that makes it easy for them to be understood by the user.

Question 4

Comparability

Answer 4

Characteristic: Accounting reports should be able to be compared over time.

Question 5

Entity

Answer 5

Principle: The business is assumed to be separate from the owner and other businesses, and its records should be kept on this basis.

Question 6

Reporting Period

Answer 6

Principle: The life of the business must be divided into periods of time to allow reports to be prepared; these accounting reports should reflect the Reporting Period in which a transaction occurs.

Question 7

Monetary Unit

Answer 7

Principle: All items must be recorded and reported in a common unit of measurement; that is, Australian dollars.

Question 8

Conservatism

Answer 8

Principle: Losses should be recorded when probable but gains should only be recorded when certain, so that liabilities and expenses are not understated and assets and revenues are not overstated.

Question 9

Consistency

Answer 9

Principle: Accounting methods should be applied in a consistent manner to ensure that reports are comparable between periods.

Question 10

Historical Cost

Answer 10

Principle: The recording of a transaction at its original cost or value, as this value is verifiable by reference to the source document.

Question 11

Going Concern

Answer 11

Principle: The life of the business is assumed to be continuous, and its records are kept on that basis.