Accounting test 1

Question	Answer
Accounting Principles	- Conservatism - Historical Cost - Entity - Reporting Period - Monetary Unit - Consistency - Going Concern
Conservatism	Losses should be recorded when probable, but gains are only recorded when certain, so that liabilities are not understated and assets are not overstated.
Historical Cost	Transactions should be recorded at their original purchase price, as this value is verifiable by source document evidence.
Entity	The business is separate from the owner and other entities and its records should be kept on this basis.
Reporting Period	The life of the business is divided into 'periods' of time. Records should reflect the 'period' in which the transaction occurs.
Monetary Unit	All items must be recorded and reported in the currency of the country in which the reports are prepared.
Consistency	Reports should be able to match up to each other over time through the use of consistent accounting procedures.
Going Concern	The life of a business is assumed to be continuous and its records are kept on the basis.
Qualitative Characteristic	- Reliability - Relevance - Understandability - Comparability
Reliability	Reports should contain information verified by source document evidence so that it is free from bias.
Relevance	Reports should include all information that is useful for decision making.
Understandability	Reports should be presented in a manner that makes it easy for the user to comprehend their meaning.
Comparability	The business should use the accounting methods to allow for the comparison of reports from one period to the next.
The Accounting Process	The process of turning financial data into financial information. Stage 1: Collecting Source Documents Stage 2: Recording Stage 3: Reporting Stage 4: Advice
Stage 1: Collecting Source Documents	The input stage where business collects data relating to its transactions.
Source Documents	The 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
Stage 2: Recording	The processing stage where information must be recorded.
Recording	Sorting classifying and summarising the information in source documents so it is more useable. Eg: - journals (grouping common transactions) - stock cards (tracking movements of stock)
Stage 3: Reporting	The output stage where information generated is reported to the owner.
Reporting	The 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
Stage 4: Advice	Accountant gives advice based on information from reports.
Advice	Provision to the owner of a range of options appropriate to their aims/objectives and recommendations as to their suitability.
Asset	A 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
Liabilities	A 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
Owner's Equity	The residual interest if the assets of the entity after the liabilities are deducted. Eg: Capital
Accounting Equation	Assets = Liabilities + Owners Equity
Transactions	Double 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.
Classified Balance Sheet	Grouping together items that have some common characteristics in order to improve the usefulness of information.

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	Created by Olivia Gniadek almost 10 years ago