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ACCT 1011 > Week 1 > Flashcards

Week 1 Flashcards

1
Q

What is the definition of Accounting?

A

“Accounting has been defined as the process of identifying, measuring, recording and communicating economic information to permit informed judgements and economic decisions by the users of the information.”

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2
Q

What are the 4 steps of the Financial Accounting process?

A
  1. Establish Goals
  2. Gather information on alternatives
  3. Determine consequences
  4. Choose a course of action
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3
Q

What are the 4 elements of the Financial Accounting process?

A
  1. Identification (of transactions)
  2. Measurement (quantification in $ terms)
  3. Recording (incl. classification and summarization)
  4. Communication (incl. preparation of accounting reports, analysis and interpretation)
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4
Q

What are the types of organisations by PURPOSE?

A
  1. commercial / “for profit”

2. non commercial / “non profit”

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5
Q

What are the types of organisations by FORM?

A
  1. sole trader
  2. partnership
  3. company
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6
Q

What is the Conceptual Framework?

A

A guide to :

  1. help regulators develop accounting standards that are consistent and logically formulated and
  2. to provide guidance to accountants in areas where no standards exist in order to prepare financial statements and reports
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7
Q

The Balance Sheet is also known as

A

Statement of Financial Position

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8
Q

What is the Balance Sheet?

A

A report listing the ASSETS, LIABILITIES and EQUITY of a business at a specific date.

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9
Q

What is the definition of an asset?

A

An asset is:

  1. a resource CONTROLLED by the entity
  2. as a result of PAST EVENTS and
  3. from which FUTURE ECONOMIC BENEFITS are expected to flow INTO the entity
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10
Q

What is the definition of a liability?

A

A liability is:

  1. a PRESENT OBLIGATION of the entity
  2. arising from PAST EVENTS,
  3. the settlement of which is expected to result in an OUTFLOW from the entity of RESOURCES embodying economic benefits.
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11
Q

What is the Income Statement?

A

A financial report listing INCOME, EXPENSES and PROFIT or LOSS of a business for a certain time PERIOD.

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12
Q

The Income Statement is also known as

A

the Profit/(Loss) Statement.

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13
Q

What is the definition of income?

A

Income is:
1. INCREASES in ECONOMIC BENEFITS during the accounting period
2. in the form of INFLOWS or enhancements of ASSETS or DECREASES of LIABILITIES
3. that result in INCREASES in EQUITY,
4. NOT relating to CONTRIBUTIONS from equity
participants

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14
Q

What is the definition of expenses?

A

Expenses are:
1. DECREASES in ECONOMIC BENEFITS during the accounting period
2. in the form of OUTFLOWS or depletions of ASSETS or INCURRENCES of LIABILITIES
4. that result in DECREASES in EQUITY,
5. NOT relating to DISTRIBUTIONS to equity
participants.

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15
Q

What is the definition of profit?

A
  1. The CHANGE in the EQUITY in an entity during a period
  2. FROM ALL EVENTS
  3. NOT relating to direct contributions of capital, or withdrawals of capital by owners.
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16
Q

What is the definition of loss?

A

The excess of expenses over incomes.

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17
Q

What is the Statement of Changes in Equity?

A
  1. A LINK between the BALANCE SHEET and the INCOME STATEMENT
  2. that EXPLAINS the CHANGES that took place in EQUITY during the period.
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18
Q

What is the definition of identification?

A

Selecting those transactions / economic events which have consequences for the entity, i.e. will affect one of the elements within the financial statement

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19
Q

What is the definition of measurement?

A

Measuring the quantitative effect of the event

  • measurement attribute, e.g. financial attribute
  • measurement unit, e.g. $
20
Q

What is the definition of recording?

A

Classifying the consequences of the event in terms of the affect on specific items
- for all events at least TWO items are affected

21
Q

What is the Accounting Equation?

A

Assets = Liablities + Equity

22
Q

What is the formula for Equity?

A

Equity = Capital Contributions - Drawings + Income - Expenses

23
Q

What is the formula Profit?

A

Profit/(Loss) = Income - Expenses

24
Q

What is the impact on Equity of entity makes a (a) a profit and (b) a loss?

A

a) Increase in equity

b) Decrease in equity

25
Q

What are Capital Contributions?

A

Amounts contributed by the owners to the entity.

26
Q

What is the impact of Capital Contributions on Equity?

A

These increase equity

27
Q

What are Drawings?

A

The withdrawal of assets from the business by its owners.

28
Q

Capital Withdrawals are also known as

A

Drawings

29
Q

What is the impact of Drawings on Equity?

A

These increase equity

30
Q

When are expenses recognised?

A

Expenses are recognised in the income statement when:
1. a DECREASE in future ECONOMIC BENEFITS
related to
2. a DECREASE in an ASSET or an INCREASE of a LIABILITY has arisen
3. that can be MEASURED RELIABLY.

31
Q

The recognition of expenses occurs simultaneously with what?

A

The recognition of EXPENSES occurs simultaneously with the recognition of

  1. an INCREASE in LIABILITIES or
  2. a DECREASE in ASSETS

(for example, the accrual of employee entitlements or the depreciation of equipment).

32
Q

When are expenses recognised?

A

Income is recognised in the income statement when:
1. an INCREASE in future ECONOMIC BENEFITS
related to
2. an INCREASE in an ASSET or
3. a DECREASE of a LIABILITY has arisen
4. that can be MEASURED RELIABLY.

33
Q

The recognition of income occurs simultaneously with what?

A

The recognition of income occurs simultaneously with the recognition of

  1. INCREASES in ASSETS or
  2. DECREASES in LIABILITIES

(for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable).

34
Q

What is the definition of Decision Making?

A 
To provide information about: 
1. the financial position, 
2. financial performance and 
3. cash flows of an entity 
that is useful to a wide range of users in making economic decisions.
35
Q

What is the definition of Accountability?

A

Financial reports also show the results of the stewardship of management or the accountability of management for the resources entrusted to it.

36
Q

What three criteria must an event/transaction satisfy to be recorded?

A

For an item to be recorded in the financial reports it must satisfy:

  1. a definition of an element of the Financial Statements
  2. being measurable ($ value) and
  3. be probable
37
Q

What is the definition of equity?

A

The residual interest of the owner/s in the assets (less liabilities) of the entity

38
Q

What is Income?

A
  1. An increase in equity
  2. that results in ▲assets or ▼liabilities
  3. other than a capital contribution by owners
39
Q

What is an Expense?

A
  1. A decrease in equity
  2. that results in ▼assets or ▲liabilities
  3. other than a distribution to the owners, i.e. drawings or dividends
40
Q

Equity is increased by

A
  1. income

2. contributions of capital

41
Q

Equity is decreased by

A
  1. expenses

2. withdrawals of capital

42
Q

Profit is

A
  1. = change in equity other than contributions & distributions
  2. = Income - Expenses
  3. = increases Equity
43
Q

What does Identification mean?

A

The accountant must select those events which have
consequences for the entity.

If an event will affect any of the elements within the financial statements, then it will be selected for recording

44
Q

What does Measurement mean?

A

To determine the quantitative effect of the event

45
Q

What does Recording mean?

A

Classify consequences of that event in terms of its
affect on specific items
– e.g. purchase a car using a loan

For all events at least TWO items are affected

46
Q

How does Communication occur?

A
  • Income Statement
  • Statement of Changes in Equity
  • Balance Sheet
  • Cash Flow Statement

ACCT 1011 (10 decks)

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