poa theory Flashcards
state and explain 2 professional ethics an accountant should have
integrity - to be straightforward and honest in their business relationships
objectivity - do not let bias, conflict of interest or influence of others to override professional judgement
accounting entity concept
activities of business are separate from actions of owners, all transactions should be recorded from business point of view
monetary concept
only business transactions that can be measured in monetary terms can are recorded
objectivity theory
accounting information recorded must be supported by relevant and verifiable evidence so that financial statements will be free from opinions and biases
going concern theory
a business is assumed to have indefinite economic life unless there is credible evidence that it may close down
accounting period concept
life of a business is divided into regular time intervals
accrual basis of accounting concept
business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period
matching theory
expenses incurred must match the income earned in the same period to determine profit for that period
consistency concept
once an accounting method is chosen, it should be applied to all future accounting periods to enable meaningful comparison
prudence concept
business cannot overstate assets and profit and understate liabilities and losses
materiality concept
relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process
revenue recognition concept
revenue is earned when goods have been delivered or service has been provided
what is a source document
it is an original written document that provides details and evidence of the transaction that has taken place
state the accounting equation
assets = liabilities + equity
state the difference between a cash discount and a trade discount
trade discount:
-given to encourage customers to buy in bulk
cash discount:
-given to encourage customers to pay early within a specified amount of time
purposes of trial balance
-to ensure arithmetic accuracy in recording
-to facilitate the preparation of financial statements
state the rule for inventory valuation, name and explain the accounting concept that supports the application of this rule.
prudence concept states that business cannot overstate assets and profits and cannot understate liabilities and losses, therefore inventory is valued at lower of cost of net realizable value so that assets are not overstated.
what is FIFO
first in first out, goods bought first are assumed to be sold first
define depreciation
depreciation is the allocation of the cost of a non current asset over its estimated useful life
causes of depreciation
obsolescence, wear and tear, legal limits, usage
