Key Terms

Question 1

What is an income statement?

Answer 1

• Records income and expenses of a business over time
• Measured as:
  Income - Expenses = Profit/Loss

Question 2

What is a Statement of Financial Position?

Answer 2

• Records assets, liabilities and capital at a point in time in a business - ‘snapshot’ of the firm
• Measured as:
  Assets - Liabilities - Capital = 0

Question 3

Key terms definitions:
Asset

Answer 3

• Resources available to a firm

Question 4

Key terms definitions:
Liabilities

Answer 4

• Amounts owed by a firm

Question 5

Key terms definitions:
Capital

Answer 5

• Amount invested by an owner

Question 6

Key terms definitions:
Income

Answer 6

• Money that a business gets

Question 7

Key terms definitions:
Expenses

Answer 7

• Money that a business spends

Question 8

Current Vs Non-Current Assets/Liabilities

Answer 8

• Current assets are assets whose benefits will be used up within a year (E.G- CASH)
• Non-Current assets are assets yielding economic benefits for more than one accounting period (1yr) (E.G- CAPITAL)

Question 9

What are 4 Accounting Conventions?

Answer 9

• Going Concern
• Prudence
• Consistency
• Business Entity

Question 10

Define Going Concern

Answer 10

• The assumption that a firm will continue to operate within a year time, and has no intention to liquidate

Question 11

Define Prudence

Answer 11

• The fact that an accountant should be cautious and not overly optimistic

Question 12

Define Consistency

Answer 12

• The fact that information should be produced in the same way with limited errors in order to increase comparability

Question 13

Define Business Entity

Answer 13

• The idea that for the sake of accounting, the Business and the owner are two separate and distinct beings