Definitions

Question 0

Qualitative characteristic:

RELIABILITY

Answer 0

Reports should contain information verified by source document evidence (audit trail) so that it is free from bias.

Question 1

Qualitative characteristic:

RELEVANCE

Answer 1

Reports should include all information that is useful for decision making which includes materiality.

Question 2

Qualitative characteristic:

UNDERSTANDABILITY

Answer 2

Reports should be presented in a manner that makes it easy for the users to comprehend their meaning (easy to understand)

Question 3

Qualitative characteristic:

COMPARABILITY

Answer 3

Reports should be able to be matched up to each other over time through the use of consistent accounting procedures.

Question 4

Accounting Principles:

CONSISTENCY

Answer 4

The business should use the same accounting methods to allow for the comparison of reports from one period to the next.

Question 5

Accounting Principles:

HISTORICAL COST

Answer 5

Transactions should be recorded at their original purchase price, as this value is verifiable by source document evidence (assets).

Question 6

Accounting Principles:

ENTITY

Answer 6

The business is separate from the owner and other entities and it’s records should be kept on this basis.

Question 7

Accounting Principles:

REPORTING PERIOD

Answer 7

The life of a business is divided into ‘periods’ of time (max 1 year). records should reflect the ‘period’ in which the transaction occurs - (accrual accounting)

Question 8

Accounting Principles:

MONETARY UNIT

Answer 8

All items must be recorded and reported in a common unit of measurement (currency of the country in which the reports are prepared)

Question 9

Accounting Principles:

CONSERVATISM

Answer 9

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

Question 10

Accounting Principles:

GOING CONCERN

Answer 10

The life of a business is assumed to be continuous and it’s records are kept on this basis.

Question 11

ASSET

Answer 11

A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity.

Question 12

CURRENT ASSET

Answer 12

A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity within 12 months or less.
Eg. Stock
Deptors
Cash at bank

Question 13

NON-CURRENT ASSET

Answer 13

A resource controlled by the entity (as a result of past events) from which future economic benefits are expected to flow to the entity after more than 12 months.
Eg. Tools and Equipment
Premises
Shop fittings

Question 14

LIABILITY

Answer 14

A present obligation of the entity (as a result of past events), the settlement of which is expected to result in an outflow of economic benefits.

Question 15

CURRENT LIABILITY

Answer 15

A present obligation of the entity (arising from past events), the settlement of which is expected to result in an outflow of economic benefits in the next 12 months.
Eg. Creditors
Bank overdraft
Loan

Question 16

NON-CURRENT LIABILITY

Answer 16

A present obligation of the entity (arising from past events), the settlement of which is expected to result in an outflow of economic benefits sometime after the next 12 months.
Eg. Mortgage (remainder)

Question 17

REVENUE

Answer 17

An inflow (or savings in outflows) in the form of an increase in assets (or decrease in liabilities) that increases owners equity (except for capital contributions).
Eg. Cash fees
Dividends

Question 18

EXPENSE

Answer 18

An outflow or consumption of economic benefits (or reduction in inflows) in the form of a decrease in assets (or increase in liabilities) that reduces owners equity.
Eg. Rent
Electricity
Wages

Question 19

EQUITIES

Answer 19

Claims on the assets of the firm, consisting of both liabilities and owners equity.

Question 20

OWNERS EQUITY

Answer 20

The residual interest in the assets of the entity after the deduction of its liabilities.

• capital
• drawings

Question 21

Difference between a CASH DEFICIT and a BANK OVERDRAFT

Answer 21

A cash deficit refers to the decrease in a firms bank balance, whereas a bank overdraft refers to a negative balance.
It describes a level of cash (overdraft) as opposed to a change (deficit)

Question 22

Cost of Goods Sold

Answer 22

All costs involved in getting stock into a POSITION, CONDITION and LOCATION ready to be sold