Week 2 Flashcards
what is ethics in accounting
ethics is standards that need to be upheld in reporting financial information
what is sustainability reporting
information that is not just based on finances but social and environmental performance as it adds value to business
what has sustainability reporting led to
the triple bottom line
what is the triple bottom line
1: social
2: environmental
3: financial
what regulation system is used in AFF1000
the framework for the preparation and presentation of financial statements (The Framework)
what was used before the framework
GAAP (generally accepted accounting principles)
what are 6 concepts in the framework
1: what a reporting entity is
2: assumptions
3: types of entities
4: accounting elements
5: recognition of elements
6: 4 financial statements
what is a reporting entity
an entity in which it is reasonable to expect the existence of users who depend on financial statements for information to help them make financial decisions
what are the 3 indicators of a reporting entity
1: separation of management from economic interest
2: economic or political influence
3: financial characteristics (large entity)
what are the 2 assumptions
1: monetary unit assumption
2: economic entity assumption
what is monetary unit assumption
only transaction data expressed in terms of money can be included in financial records
what is economic entity assumption
activities of entity be kept separate and distinct from activities of owner
what are the 3 types of entities
1: proprietorship
2: partnership
3: company
what are features of proprietorships
1: owned by 1 person
2: small amount of start up capital needed
3: owner receives profits liable for losses
what are features of partnerships
1: owned by 2 or more people
2: same as proprietorships except spread between partners
what are features of companies
1: separate legal entity
2: ownership divided into shares
3: shareholders have limited liability
4: companies have unlimited life
what is recognition criteria?
recognition is the process of incorporating in the finanical statements an item that meets the definition of an element
what are the 2 recognition criteria
1: probable occurrence
2: reliable measurement
what is probable occurrence
more then 50% chance of occurring
what is reliable measurement
an item has a cost or value that can be measured reliably
what are the 4 financial statements
1: Income Statement
2: statement of changes in equity
3: statement of financial position (balance sheet)
4: statement of cash flows
what does income statement show
income and expenses and resulting profit or loss
what does statement of changes in equity show
summarises the change in owners equity
what does the balance sheet show
reports value of assets, liablities and owners equity at a specific date
what does statement of cash flows show
summaries the cash inflows and outflows
what are the 2 fundamental qualitative characteristics
1: relevance
2: faithful representation
what is relevance
financial information must have a quality that influences users of economic data by helping them make predictions and confirming past evaluations
what is faithful representation
information is free from material error and bias and represent faithfully the transactions it claims to represent
what are the 4 features of faithful representation
1: substance over form
2: neutrality
3: completeness
4: accuracy
what are the 4 enhancing qualitative characteristics
1: comparability
2: understandabilty
3: timeliness
4: verifiability
what is comparability
users need to be able to compare external reports to compare entities over time
what is understandability
users with a solid financial background must be able to understand the information in reports
what is timeliness
having information available before it loses ability to influence decisions
what is verifiability
different observers should reach agreement over what is presented in financial statements
what are the 2 qualitative constraints
1: materiality
2: balance between benefit and cost
what is duality
every transaction has a dual affect
what is the extended accounting equation
Assets = Liabilites + Owners Equity + Revenue - Expenses
what does the extended equation show
illustrates the result of revenue and expenses
what is the extended extended accounting equation
Assets = Liabilites + Owners Equity + Revenue - Expenses + Additional Capital - Distributions
what does the extended extended equation show
shows the impact of owners activites
what is the account
an account is an individual accounting record of increases and decreases in a specific asset, liability or owners equity item
are assets, expenses and drawings treated the same way
yes
how are assets,expenses and drawing treated
an increase in these accounts is debited
a decrease in these accounts is credited
are liabilities, income and owners equity treated in the same way
yes
how are liabilites, income and owners equity treated
an increase in these accounts is credited
a decrease in these accounts is debited
what is the normal balance for assets, expenses and drawings
DEBIT
what is the normal balance of liabilites, income and owners equity
CREDIT
what are the 4 steps in the recording process
1: identifty the transaction from source doucments
2: analyse each transaction for its effects on the accounts
3: enter transaction information in journal
4: transfer journal information into the ledger
what is the journal
the book of original entry
what is the features of a journal entry
1: date of transaction
2: accounts/amounts to be debited/credited
3: explanation of transaction
what is a journal entry with 3 or more accounts invloved
compound
what is the ledger
the entire group of accounts by a business
how should ledgers be ordered
the order of what is presented in financial statements
what is the procedure of posting from journal to ledger
in ledger enter appropriate accounts the amount debited/credited with explanation and date
what is the chart of accounts
list accounts and account numbers to help identify them in ledger
