Week 1 Flashcards
Who is responsible for developing GAAP for Australia?
Australian Accounting Standards Board
What is the time period assumption?
The time period assumption assumes the economic life of a business can be divided into artificial time periods.
What is an ‘interim period’?
A time period less than a year is called interim period.
What is calender year?
A calender year begins on the New Year’s Day of the year and ends on the last day of the year.
What is financial year?
A period used for calculating annual financial statements. It could start from and end on any month of the year.
When do you recognize revenue and expense in accrual basis?
Accrual basis recognize revenue when earned and recognize expense when incurred.
When do you recognize revenue and expense in cash basis?
Revenue is recorded when cash is received, and expenses are recorded when cash is paid.
What is going concern assumption?
Assume entity will continue in operation long enough to carry out its existing objectives.
What are the two fundamental qualitative characteristics?
Relevance and faithful representation
What are four enhancing qualitative characteristics?
1) Comparability
2) Verifiability
3) Timeliness
4) Understandability
What is the definition of asset?
A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
What is the definition of liabilities?
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
What is the definition of equity?
The residual interests in the assets of the entity after deducting all its liabilities.
What are the recognition criteria for the elements?
1) Must be probable that any future economic benefits associated with the item will flow to or from the enterprise, and,
2) can be measured reliably.
What is the advantage of percentage of completion method?
Allows recognition of profit progressively.
What is the disadvantage of percentage of completion method?
It relies on estimates.
What is the advantage of completed contract method?
Recording expenses when known, thus conservative.
What is the disadvantage of completed contract method?
No profit recognition in early years despite work performed.
