Elements

Question 1

Five accounting elements

Answer 1

Incomes
Expenses
Assets
Liabilities
Equity

Question 2

Define income

Answer 2

Must be inflows or enhancements of economic benefits that increase assets or reduce liabilities. Consists of both revenue and gains

Question 3

Define expenses

Answer 3

Decreases in economic benefits during accounting period. Outflows. Depletion of assets

Question 4

Define assets

Answer 4

Past event. Is controlled by entity. Economic benefits are expected to flow to entity. Held for no longer than a year

Question 5

Define liability

Answer 5

Is a present obligation of an entity, past event, expected to result in outflow from the entity of economic benefits. Are expected to be settled within operating cycle (one year)

Question 6

Define equity

Answer 6

The residual interest in the assets of the entity after deducting all its liabilities’
Made up of CC and RE

Question 7

Define transaction

Answer 7

Occurrences that affect assets, liabilities and equity.
Recorded when it can be RELIABLY MEASURED and occurs as ARMS LENGTH

Question 8

Define depreciation

Answer 8

The systematic allocation of the cost of a TANGIBLE asset over its useful life.

Question 9

Difference between depreciation expense and accumulated depreciation

Answer 9

Depreciation expense - refers to how much an asset depreciates over THAT YEAR
Accumulated depreciation - how much an asset depreciates over the COURSE OF ITS LIFE

Question 10

What is amortisation

Answer 10

Depreciation of an intangible asset

Question 11

Finish the sentence: ‘depreciation is a process that ….’

Answer 11

Requires a lot of judgement

Question 12

Define a contra asset account

Answer 12

Where the natural balance of the account will either be 0 or a credit (negative amount). A negative amount in a positive environment.

Question 13

What is the accounting equation

Answer 13

A = L + OE

Question 14

What does a balance sheet show

Answer 14

A snapshot of an entity’s financial position

Question 15

What format do we use for a balance sheet ?

Answer 15

Narrative format - presented down the page

Question 16

Limitations of balance sheet

Answer 16

• Only shows snapshots of A L E values at a particular point of time (on balance day) which is not representative of other points in time.
• Is restrictive in terms of the lack of detail
• An entities value id not reflected due to
  > items that generate future benefits
  > the historical nature of it (time delay)

Question 17

Limitations of balance sheet

Answer 17

• Only shows snapshots of A L E values at a particular point of time (on balance day) which is not representative of other points in time.
• Is restrictive in terms of the lack of detail
• An entities value id not reflected due to
  > items that generate future benefits
  > the historical nature of it (time delay)