Module 1 Flashcards
What is an asset?
A present economic resource controlled by the entity as a result of past events.
What is a liability?
A present obligation of the entity to transfer an economic resource as a result of past events.
What is equity?
The residual interests in the assets of the entity after deducting all its liabilities.
What is income?
Increases in assets, or decreases in liabilities, that result in increases in equity.
What is an expense?
Decreases in assets, or increases in liabilities, that result in decreases in equity.
Is a sole trade a separate legal entity from the owner?
No.
What is accrual accounting?
Depicts the transactions in the period in which those effects occur.
What is prudence?
The exercise of caution when making judgements under conditions of uncertainty. Means that assets and income are not overstated and liabilities and expenses are not understated.
Who is the reporting entity?
An entity that prepares the financial statements.
What is the dual effect?
Every transaction has a dual-effect and gives rise to double entry bookkeeping.
