Introduction to Accounting Flashcards
What is the objective of financial statements?
To provide info about the assets, liabilities, equity, income and expenses of an entity that is useful to financial statement users in assessing the prospects for future net cash flows to the entity and for assessing managements’ stewardship of the entity’s resources
Who are financial statements prepared for?
Sole traders, partnerships, private and public limited companies, and non-profit organisations
Who are financial statements used by?
Management, lenders, employees, public, owners as investors and financial analysts, customers and suppliers, and Government and tax authorities
What is an asset?
A present economic resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
What are non-current assets?
Assets intended for use on a continuing basis, bring future benefit for a considerable period of time
What is an example of non-current assets?
Land and buildings, motor vehicles, plant, equipment
What are current assets?
Assets expected to be converted into cash with the trading cycle
What is an example of current assets?
Inventories (stock) and receivables (debtors)
What is a liability?
A present 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 a non-current liability?
Due to be paid after 1 year
What is an example of non-current liabilities?
Bank loan
What is a current liability?
Due to be paid within 1 year
What is an example of current liabilities?
Payables (trade creditors)
What is equity?
The residual interest in the assets of the entity after deducting all its liabilities
What is contributed capital?
Funds invested by the owner
What is earned capital?
Accumulated profits which have been re-invested rather than distributed (as dividends) to the owner
What is income?
Inflow of cash, receivables or other consideration
What is an example of income?
Sale of goods, sales of assets, bank interest
What are expenses?
Business costs which don’t bring future benefit, benefit
consumed in current accounting period
What is an example of expenses?
Telephone, rates, wages
The definition of assets are only recognised on the face of the balance sheet if..
Recognition provides users with: relevant info about the asset, a faithful representation of the asset, and information that results in benefits exceeding the cost of providing that information
