ELEMENTS, ASSUMPTIONS, CHARACTERISTICS

Question 1

source documents

Answer 1

documents that provide both the evidence that a transaction has occurred and the details of the transaction itself

Question 2

accounting entity assumption

Answer 2

the records of assets, liabilities and business activites of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities.

Question 3

going concern assumption

Answer 3

the business will continue to operate in the future, and its records are kept on that basis.

Question 4

period assumption

Answer 4

reports are prepared for a particular period of time, such as a month of year, in order to obtain comparability of results

Question 5

accrual basis assumption

Answer 5

revenues are recognised when earned and expenses when incurred, so profit is calculated as revenue earned in a particular period less expenses incurred in that period

Question 6

relevance

Answer 6

financial information must be capable of making a difference to the decisions made by users by helping them to form predictions and/or confirm or change their previous evaluations

Question 7

faithful representation

Answer 7

financial information should be a faithful representation of the real-world economic event it claims to represent: complete, free from material error and neutral (without bias)

Question 8

verifiability

Answer 8

financial information should allow different knowledgeable and independent observers to reach a consensus that an event it faithfully represented.

Question 9

comparability

Answer 9

financial information should be able to be compared with similar information about other entities and with similar information about the same entity for another period of another date

Question 10

timeliness

Answer 10

financial information should be available to decision makers in time to be capable of influencing their decisions

Question 11

understandability

Answer 11

financial information should be understandable or comprehensible to users with a reasonable knowledge of business and economic activities, and presented clearly and concisely

Question 12

assets

Answer 12

a present economic resource controlled by an entity as a result of past events

Question 13

liability

Answer 13

a present obligation of an entity to transfer an economic resource as a result of past events

Question 14

owner’s equity

Answer 14

the residual interest in the assets of an entity after the deduction of its liabilities

Question 15

revenues

Answer 15

increases in assets or decreases in liabilities that result in increases in owner’s equity, other than those relating to contributions from the owner

Question 16

expenses

Answer 16

decreases in assets of increases in liabilities that result in decreases in owner’s equity, other than those relating to distributions to the owner

Question 17

accounting equation

Answer 17

the rule that states that assets must always equal liabilities plus owner’s equity

Question 18

balance sheet

Answer 18

an accounting report that details the business’s assets, liabilities and owner’s equity at a particular point in time

Question 19

current asset

Answer 19

a present economic resource controlled by an entity as a result of past events that is reasonably expected to be converted to cash, sold or consumed within the next 12 months.

Question 20

non-current asset

Answer 20

a present economic resource controlled by an entity as a result of past events that is not held for resale and is reasonably expected to be used for more than the next 12 months

Question 21

current liabilites

Answer 21

a present obligation of an entity to transfer an economic resource as a result of past events that is reasonably expected to be settled within 12 months.

Question 22

non-current liabilities

Answer 22

a present obligation of an entity to transfer an economic resource as a result of past events that is not required to be settled within 12 months