Week 4

Question 1

What are accruals? 3 examples

Answer 1

1. Expenses incurred but not yet paid for (Adjustment e)
2. Income earned but not yet received (Adjustment f)
3. Doubtful Debts Adjustment (Adjustment g)

Question 2

What are Qualitative Characteristics?

Answer 2

1. Relevance
2. Materiality
3. Reliability
4. Prudence / Conservatism
5. Understandability
6. Comparability

Question 3

What is the definition of Relevance?

Answer 3

Information has the quality of relevance when it influences the economic decisions of users by:

1. helping them evaluate past, present or future events or
2. confirming, or correcting, their past evaluations.

Question 4

Information is Material if

Answer 4

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial report.

Question 5

What is the definition of Materiality?

Answer 5

Information that is likely to affect the decisions of users of financial statements should be separately disclosed

Question 6

What is the definition of Reliability?

Answer 6

Information has the quality of reliability when it:

1. is free from material error and bias
2. can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.

Question 7

Prudence is

Answer 7

Trying not to overstate assets and profits or to understate liabilities and expenses.

Question 8

What is the definition of Prudence?

Answer 8

A notion concerning the accountant’s desire to exercise care and caution as part of ensuring the reliability of the information.

Consequently, an accountant is cautious not to:

1. overstate assets and profit and
2. understate liabilities and expenses.

Question 9

What is the definition of Understandability?

Answer 9

An essential quality of the information provided in financial reports is that it is readily understandable by users.

Question 10

What is the definition of Comparability?

Answer 10

The ability to compare the financial reports of one firm over time or compare different firms at a point in time.

Question 11

What are Current Assets?

Answer 11

Assets that are expected to be realised within:

1. twelve months of the reporting date or
2. in the normal course of the entity’s operating cycle or
3. that is held primarily for trading purposes or that is cash or
4. a cash-equivalent asset

Question 12

What are Non-Current Assets?

Answer 12

Assets that are NOT expected to be realised within

1. twelve months of the reporting date or
2. in the normal course of the entity’s operating cycle

Question 13

What are Current Liabilities?

Answer 13

Liabilities that are expected to be settled within

1. twelve months of the reporting date or
2. in the normal course of the entity’s operating cycle

Question 14

What are Non-Current Liabilities?

Answer 14

Liabilities that are not expected to be settled within

1. twelve months of the reporting date or
2. in the normal course of the entity’s operating cycle

Question 15

What are the three categories that equity is generally split into?

Answer 15

The equity of a typical company is split into 
three major categories: 
– share capital
– retained earnings, and 
–other reserves.