Qualitative assumptions and accounting assumptions

Question 1

what are the qualitative characteristics

Answer 1

• relevance
• verifiability
• comparability
• faithful representation
• understandability
• timeliness

(The Fuc Veronica Rum)

Question 2

what is timeliness?

Answer 2

timeliness means having financial information available to decision makers in time to be capable of influencing their decisions. The older the information, the less useful it is.

Question 3

what is faithful representation?

Answer 3

the information reported is a faithful representation of the real world economic event it claims to represent. it is free from error and neutral (without bias)

Question 4

what is understandability?

Answer 4

Financial information is comprehensible to users with reasonable knowledge of business and economic activities. No accounting jargon, presented clearly and concisely.

Question 5

what is comparability?

Answer 5

useful information is provided when the financial reports of an entity can be compared over time and compared with similar information of other entity’s for another period.

Question 6

what is verifiability?

Answer 6

Verifiability ensures that different, knowledgeable and independent observers can reach a consensus that a representation of an event is faithfully represented. it is maintained by retention of source documents. the purpose of verifiability is to hold accounting professional accountable for their work.

Question 7

what is relevance?

Answer 7

financial information must be capable of making a difference to the decisions made by users by helping them form predictions about the outcomes of past, present or future events and/or confirms or changes their previous evaluations by providing suitable feedback.

Question 8

what are the accounting assumptions?

Answer 8

• accounting entity
• accrual basis
• period
• going concern

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Question 9

what is accounting entity?

Answer 9

the assumption that the records of assets, liabilities and business activities of the entity are kept seperate from the owner’s entity.

Question 10

what is going concern?

Answer 10

the assumption that the business will continue to operate into the future, and its records are kept on that basis. it is important because it allows us to record transactions that affect the future of the business

Question 11

what is accrual basis?

Answer 11

the elements of the reports are recognised when they satisfy the definitions and recognition criteria, meaning profit is calculated as revenue earned in a particular period less expense incurred in that same period.

Question 12

what is period?

Answer 12

reports are prepared for a particular period of time, month or year, to obtain comparability of results. Profit determination is when you recognise the revenue for a period and deduct the expenses incurred for that same period.
reporting period cannot be longer than a year to meet tax requirements.