SAC 1 Defintions

Question 1

Liability

Answer 1

A present obligation of the entity (as of past events) to transfer an economic resource.

Question 2

Assets

Answer 2

A present economic resource that is controlled by an entity(as of past events) that has the potential to produce future economic benefit.

Question 3

Expense

Answer 3

A decrease in assets (or increase in liabilities) that reduce the owners equity. Except for Drawings.

Question 4

Revenue

Answer 4

An increase in assets or decrease in liabilities that lead to a increase in Owners Equity. Except for Capital Contribution.

Question 5

Liquidity

Answer 5

The ability for a business to meet its short-term debt as they fall due.

Question 6

Current Liability

Answer 6

Obligations of the entity that are expected to be settled in the next 12 months after the reporting period.

Question 7

Current Assets

Answer 7

A present economic resource controlled by the entity that is expected to be sold or converted into cash within 12 months.

Question 8

Debt Ratio

Answer 8

Measures the proportion of the firm’s assets that are funded by external sources.

Question 9

Capital Formula

Answer 9

Capital = Assets - Liabilities

Question 10

Working Capital Ratio Formula

Answer 10

Current Assets divided by Current Liabilities

Question 11

Debt Ratio Formula

Answer 11

Total Liabilities divided by Total assets times 100

Question 12

Interest Formula

Answer 12

Principal times Interest times Time

Question 13

Accounting Equation

Answer 13

Assets = liabilities + Owners Equity

Question 14

Timeliness

Answer 14

Financial information should be available to decision makers in time to be able to influence their decision