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ACC1006F: W01-W04 > The conceptual framework > Flashcards

The conceptual framework Flashcards

1
Q

What is the objective of using financial statements?

A

To provide info about assets, liabilities, equity, income and expenses that is useful in assessing the prospects of future net cash inflows and management’s stewardship of the entities resources.

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2
Q

What is the focus of a “specialised journal”?

A

Efficiency

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3
Q

What is the use of a Cash receipts journal?

A

To record all cash receipts

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4
Q

What is the use of a cash payments journal?

A

To record all cash payments

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5
Q

What is the use of a purchases journal?

A

To record all credit purchases

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6
Q

What is the use of a sales journal?

A

To record all credit sales

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7
Q

What is “regulation” in accounting?

A

When authority describes how business may do something

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8
Q

Which part of the financial accounting system requires regulation?

A

The preparation of financial statements

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9
Q

What is the need for regulation?

A

External users rely on them for reliability

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10
Q

What do we call regulation that applies to the preparation of financial statements?

A

Generally accepted accounting practice (GAAP)

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11
Q

What do we call the documents that prescribe (GAAP)?

A

Accounting standards

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12
Q

Who sets the standards used by SA’s largest business?

A

International Accounting Standards Board (IASB)

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13
Q

Standards are called?

A

International Financial Reporting Standards (IFRS)

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14
Q

What are the two qualitative characteristics of useful financial information called? (2)

A
  1. Fundamental characteristics

2, Enhancing characteristics

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15
Q

What are fundamental characteristics?

A

Without these information is not useful

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16
Q

What are enhancing characteristics?

A

These enhance the usefulness of information

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17
Q

What are the two subdivisions of fundamental characteristics? (2)

A
  1. Relevance

2. Faithful representation

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18
Q

What are the four subdivisions of enhancing characteristics? (4)

A
  1. Comparability
  2. Verifiability
  3. Timeliness
  4. Understandability
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19
Q

What is relevance?

A

Makes a difference to users decisions

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20
Q

What makes up relevance? (2)

A
  1. Predictive value

2. Confirmatory value

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21
Q

Define Materiality

A

Information is material if omitting or misstating it could influence a user’s decisions. Threshold is entity-specific.

22
Q

What is faithful representation?

A

Reveals the substance, rather than merely the legal form of the economic phenomenon

23
Q

What makes information a faithful representation? (3)

A
  1. Complete
  2. Neutral
  3. Free from error
24
Q

Define prudence

A

Assets and income not overstated; liabilities and expense not understated, thus neutral

25
Q

What is comparability?

A

Across time for one entity, and across different entities. Not uniform but consistent.

26
Q

What is verifiability?

A

Different, knowledgeable observers would reach consensus. Direct or indirect

27
Q

What is timeliness?

A

Info in time to influence decisions

28
Q

What is understandability?

A

Clearly presented. Reasonable knowledge of business. No complex information omitted.

29
Q

What is the going concern assumption?

A

Assumption that business will continue in operation for foreseeable future.

30
Q

Define Asset

A

A present economic resource controlled by the entity as a result of past events.

31
Q

What is an economic resource (ER)?

A

A resource that has the potential to produce economic benefits.

32
Q

True or false, economic benefits include cash and avoidance of cash outflows.

A

True

33
Q

What does controlled by the entity (Ctrl) mean?

A

Ability to direct the use of the resource and obtain the EBs; usually when the entity owns the resource; except where the ability has been transferred.

34
Q

What does present as a result of a past event (PE) mean?

A

The key event giving rise to control is in the past

35
Q

If an asset mets the definition and the ____________ _____, then it can be identified on the ____.

A

Recognition criteria

SOFP

36
Q

Define recognition criteria

A

It must provide relevant information and faithful representation.

37
Q

What are the three characteristics of recognition criteria? (3)

A
  1. Existence uncertainty (RelEu)
  2. Probability of economic benefits is not low (Relprob)
  3. The measurement uncertainty is not high (FRMu)
38
Q

What does “Free on board” mean?

A

The legal term indicating who is responsible for an asset during transit

39
Q

What is FOB shipping point?

A

It means the customer gains control of the asset when it is loaded at the shipping point.

40
Q

What is FOB destination?

A

It means the customer only gains control of the asset once it it unloaded at the destination.

41
Q

Define Liability

A

A present obligation of the entity to transfer an economic resource as a result of past events.

42
Q

What are the three criteria of the definition of a liability? (3)

A
  1. An obligation of the entity
  2. To transfer an economic resource
  3. As Present as a result of past events
43
Q

What does an obligation to the entity mean? (2)

A
  1. A duty or responsibility that the entity has no practical ability to avoid
  2. Relative to the going concern assumption
44
Q

How is an obligation defined? (2)

A
  1. include: obligations to pay cash, deliver goods or provide services
  2. obligation must have the potential to require the entity to transfer economic benefits in one circumstance
45
Q

What does present as a result of past events entail? (2)

A
  1. The “obligating event” is in the past, one party has performed but the other hasn’t
  2. The obligating event is usually obtaining economic benefits
46
Q

How do contracts affect liabilities?

A

A contract is just an agreement to do things for each other

47
Q

How does a liability arise? (3)

A
  • Not signing the contract
  • When economic benefits are obtained from another party
  • When the other party performs in terms of the contract but the other hasn’t
48
Q

If a tenant signs a contract on the 1 March and rent is due on 31 March, when is the obligating event?

A

31 March

49
Q

If a tenant pays of the 31 March, is there an obligation?

A

No

50
Q

If a tenant does not pay on the 31 March, what happens?

A

A liability increases every day from 1 April, the tenants full obligation has arisen by 30 April

ACC1006F: W01-W04 (5 decks)

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