Qualitative Characteristics and Accounting Assumptions Flashcards
Period Assumption
The assumption that reports are prepared for a specific, consistent period of time in order to compare results on a regular basis.
Accrual Basis Asumption
The assumption that we will calculate profit by subtracting expenses incurred from revenue earned in a particular reporting period. Revenue is recognised as earned when the expected inflow of economic benefit can be measured in a faithful and verifiable way. Expenses are recognised when the consumption of a good or service can be measured or when the item is ‘used up’
Going Concern Assumption
The assumption that the business will continue to operate in the future, and records are made on that basis.
Entity Assumption
The assumption that the records of assets, liabilities and other business activities are kept completely separate from those of the owner of the entity.
Timeliness
Financial information should be available to decision-makers in time to be capable of making an influence in their decisions
Relevance
Financial information must be capable of making a difference to the decisions made by users.
Understandability
Financial information should be understandable or comprehensible to users with a reasonable knowledge of business and economic activities, and presented clearly and concisely
Verifiability
Ensures that different, knowledgable and independent observers can come to the same conclusion that a particular representation of an event is faithfully represented
Faithful Representation
The financial information reported is a faithful representation of the real-world economic event it claims to represent: complete, free from error and neutral (without bias)
Comparability
Useful information is provided when the financial reports of a business can be compared over time and compared with similar information of other periods.
