Conceptual Framework Flashcards
What is the Conceptual Framework?
Logical and Sensible guide for preparing accounting standards and applying them. Foundation of financial reporting.
Who are the users of Financial Statements?
Shareholders
Lenders
Employee
Government
Management
Public
Potential Investors
Suppliers
Competitors
The objective of Financial Statements?
To Provide information on the financial position, performance and changes in financial position of an entity which is useful to a wide range of users in making economic decisions.
What are the 2 fundamental Qualitative Characteristics?
Relevance
Faithful Representation
What are the 4 enhancing Qualitative Characteristics?
Comparibility
Verifiability
Timeliness
Understandibility
What are the Elements of the Conceptual Framework?
Assets
Liabilities
Equity
Income
Expense
What is an Asset?
Resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
What is a Liability?
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?
What remains after an Entity ceases trading and all assets are sold and liabilites paid.
“The residual interest in the assets of the entity after deducting all its liabilities”.
What is an Income?
Consists of both Revenue and Gains.
What is an Expense?
Losses and normal expenses such as wages and depreciation.
What is the Accounting Equation?
Assets = Equity + Liabilities.
What are the Measurements of the Elements in the Financial Statements?
Historical Cost, Current Cost, Realisable Cost, Present Value.
What is Historical Cost?
The amount of cash paid to acquire them.
What is the Current Cost?
The price now, not purchase price.
What is the Realisable Cost?
The price the Asset could be sold for now.
What is the Present Value?
Present discounted value of future net cash inflow.
What is Relevance?
Capable of influencing the decisions of users.
What is Faithful Representation?
Complete, Neutral and free from error.
What is Comparibility?
Compare an entity overtime and with similar information about other entities.
What is Verifiability?
Can be verified through an audit making it credible and reliable.
What is Understandability?
Understandable to those that might want to use and review it.
What is Timeliness?
Provided within a timescale to users for their decision making purposes.
What is Revenue?
The Gross inflow of economic benefits during the period arising from the ordinary activities of the entity.
