Flashcards
Accounting test 1
Cards in this deck (28)
- 1Accounting Principles- Conservatism
- Historical Cost
- Entity
- Reporting Period
- Monetary Unit
- Consistency
- Going Concern - 2ConservatismLosses should be recorded when probable, but gains are only recorded when certain, so that liabilities are not understated and assets are not overstated.
- 3Historical CostTransactions should be recorded at their original purchase price, as this value is verifiable by source document evidence.
- 4EntityThe business is separate from the owner and other entities and its records should be kept on this basis.
- 5Reporting PeriodThe life of the business is divided into 'periods' of time. Records should reflect the 'period' in which the transaction occurs.
- 6Monetary UnitAll items must be recorded and reported in the currency of the country in which the reports are prepared.
- 7ConsistencyReports should be able to match up to each other over time through the use of consistent accounting procedures.
- 8Going ConcernThe life of a business is assumed to be continuous and its records are kept on the basis.
- 9Qualitative Characteristic- Reliability
- Relevance
- Understandability
- Comparability - 10ReliabilityReports should contain information verified by source document evidence so that it is free from bias.
- 11RelevanceReports should include all information that is useful for decision making.
- 12UnderstandabilityReports should be presented in a manner that makes it easy for the user to comprehend their meaning.
- 13ComparabilityThe business should use the accounting methods to allow for the comparison of reports from one period to the next.
- 14The Accounting ProcessThe process of turning financial data into financial information.
Stage 1: Collecting Source Documents
Stage 2: Recording
Stage 3: Reporting
Stage 4: Advice - 15Stage 1: Collecting Source DocumentsThe input stage where business collects data relating to its transactions.
- 16Source DocumentsThe pieces of paper that provide the evidence that a transaction has occurred and the details of the transaction itself.
Eg: - receipts
- cheque butts
- invoices
- memos
- bank statements - 17Stage 2: RecordingThe processing stage where information must be recorded.
- 18RecordingSorting classifying and summarising the information in source documents so it is more useable.
Eg:
- journals (grouping common transactions)
- stock cards (tracking movements of stock) - 19Stage 3: ReportingThe output stage where information generated is reported to the owner.
- 20ReportingThe preparation of financial statements that communicate financial information to the owner so decisions can be made.
3 General Purpose Reports:
- statements of receipts and payments
- income statement
- balance - 21Stage 4: AdviceAccountant gives advice based on information from reports.
- 22AdviceProvision to the owner of a range of options appropriate to their aims/objectives and recommendations as to their suitability.
- 23AssetA resource controlled by the entity (as a result of past events), from which future economic benefits are expected.
Current:
- Cash on hand
- Stock of supplies
- Debtors
Non-current:
- Equipment
- Premises
- Vehicles - 24LiabilitiesA present obligation of the entity (as a result of past events), the settlement of which is expected to result in an outflow of economic benefits.
Current:
- Creditors
- Bank overdrafts
- Wages
Non-current:
- Mortgages - 25Owner's EquityThe residual interest if the assets of the entity after the liabilities are deducted.
Eg: Capital - 26Accounting EquationAssets = Liabilities + Owners Equity
- 27TransactionsDouble Entry Accounting
1. Every transaction will affect at least 2 items in the accounting equation.
2. After recording these changes, the accounting equation must still balance. - 28Classified Balance SheetGrouping together items that have some common characteristics in order to improve the usefulness of information.
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- Flashcards on Accounting test 1, created by Olivia Gniadek on 16/02/2016.
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- Olivia Gniadek
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