Unit 3&4 Flashcards
Assets
economic resources controlled by an entity which are likely to produce economic benefits in the future.
Liabilities
present obligations of an entity to transfer economic resources to other entities.
Owners Equity
the residual value of the assets of an entity after deducting all its liabilities.
Revenue
increases in assets or decreases in liabilities that lead to an increase in owners equity
Expenses
decreases in assets or increases in liabilities that result in a decrease in owners equity
Accounting Equation
A = OE + L
A - L = OE
Accounting Assumptions
Period Assumption
Accrual Accounting Assumption
Going Concern Consumption
Entity Assumption
Period Assumption
- life of business is divided into periods of time known as reporting periods
- is done in order to measure performance
Accrual Accounting Assumption
method of determining profit where profit = revenues earned less expenses incurred during a particular period
Going Concern Assumption
Business will continue to operate and not be wound up in the future
Entity Assumption
Records of business are kept separate from owner
Qualitative Characteristics
Timeliness Understandability Relevance Faithful Representation Comparability Verifiability
Timeliness
information that is provided in a timely manner that has the ability to affect decision making
Understandability
information is presented in a way that people with a reasonable knowledge of business can understand it.
Relevance
information that has the potential to affect decision making
