SAC 2 Part 1 Flashcards
What does the fair value of an asset represent?
The price that would be received if the asset was sold at the time it was acquired by the business
How does the fair value of an asset uphold faithful representation?
Financial information should be a faithful representation of real-world economic events which is free from error and without bias. The asset must be valued at what it is worth to the business at the time it is acquired.
What is a memo?
An internal source document used to verify a transaction that does not involve cash, and is not a sale, purchase or return of inventory
What are some examples of transactions verified by a memo?
Non-cash drawings, correction of errors, inventory loss/gain
What effect will the contribution of any asset from the owner of a business have on the accounting equation?
Assets increase- (Vehicle)
Owners Equity increase- Capital
What effect does a non-cash drawing by the owner have on the accounting equation?
Assets decrease- (Office Furniture)
Owners Equity decrease- Capital
What is a commencing entry?
A general journey entry to establish double-entry records by entering existing assets, liabilities and owners equity balances in the general ledger
What is a correcting entry?
A general journal entry to correct an error in the way a transaction is recorded in the general journal or ledger
How do you correct an entry in the general journal?
Undo any incorrect entries by reversing them, and record the entry as it should have been recorded
What is an order form?
A document issued by a business requesting the supply of inventory or other goods
What is an order confirmation?
A document issued by the supplier confirming the receipt of an order for inventory
What is a shipping confirmation?
A document issued by the supplier confirming that inventory has been dispatched and is being shipped to the business
What is a delivery docket?
A document issued by the supplier to accompany a delivery, listing the type and quantity of all items delivered
What does the going concern assumption state?
The business will continue to operate in the future, and its records are kept on that basis
What does the accounting entity assumption state?
The records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities
What does the period assumption state?
Reports are prepared for a particular period of time, such as a month or year, in order to obtain comparability of results
What does the accrual basis assumption state?
Revenues are recognised when earned and expenses are recognised when incurred, so profit is calculated as revenue earned in a particular period less expenses incurred in that period
What does relevance state?
Financial information must be capable of making a difference to the decisions made by users
What does materiality refer to?
The size or significance of financial information, determined by considering whether omitting it or misstating it from the reports could influence decisions that users make
What does verifiability state?
Financial information should allow different knowledgeable and independent observers
to reach a consensus (agree) that an event is faithfully represented
What does comparability state?
Financial information should be able to be compared with similar information about other entities and with similar information about the same entity for another period or another date
