Flashcards
Acc1100 Weeks 1-4
Flashcards do conjunto (75)
- 1Accounting Definition is...The process of identifying, measuring, recording and communicating economic transactions and events of a business operation
- 2The Accounting Process Explained Steps are...-Identifying
take into consideration all transactions that affect business entity
-Measuring
Quantifying in monetary terms
-Recording
Analysing, recording, classifying and summarising transactions
-Communication
Preparing accounting reports, analysing and interpreting - 36 Types of Organisations are...-Sole Proprietor
-Partnership
-Company
-Trust
-Cooperative
-Not-for-profit (associations or government) - 4Integrating GAAP Order of applicationCorporations Act -> Accounting standards and interpretations -> Conceptual framework concepts and principles
- 54 Sections of Conceptual Framework are...-Objective of general purpose financial reporting
-The reporting entity
-Qualitative Characteristics
-Definition of elements of financial statements - 6Objective of General Purpose Financial Reporting is to...-Provide financial information about reporting entity that is useful to existing and potential equity investors, lenders and other creditors in making decisions about providing resources to entity. (OB2)
-IASB's Preliminary Conceptual Framework - 7Objective of General Purpose Financial Reporting - Stewardship and Accountability Objectives- For entities with a separation of ownership from control, reports can support stewardship/ accountability function.
-Managers use reports to show owners they are fulfilling their stewardship
-Shareholders use reports to check on managers and hold accountable - 8Objective of General Purpose Financial Reporting- Decision-usefulness Objective-Objective is to provide information to users that is useful for making and evaluating decisions about allocation of scarce resources
(perspective of Australian CF SAC 2) - 9Objective of General Purpose Financial Reporting -3 Activities External Users are Interested inFinancing Activities
-Borrowing from banks
-Selling shares to investors
Investing Activities
-Acquisition or sale of resources needed to operate business e.g. purchase or sale of property, plant or equipment
Operating Activities
-Results from operational activities undertaken to earn income
Revenues less expenses = Profit/loss - 10The Reporting Entity is...An entity in which it is reasonable to expect the existence of users who depend on general purpose financial reports to enable them to make economic decisions (SAC !)
- 11The Reporting Entity Indicators are...-If the entity is managed by individuals who are not owners of the entity
-If the entity is politically or economically important
-If the entity is considered large in sales, assets, borrowings, customers and employees - 12The Reporting Entity in the Proposed Improved Conceptual Framework ED/2010/2-'a reporting entity is a circumscribed area of economic activity whose financial information has the potential to be useful to existing and potential equity investors, lenders and other creditors who cannot directly obtain the information they need in making decisions about providing recourses to the entity.'
- 13The Reporting Entity in the Proposed Improved Conceptual Framework - Features Necessary to Identify a Reporting Entity- Conducts, conducted or will conduct economic activities;
- The economic activities can be distinguished from other entities and the economic environment;
-Financial Information will be useful about making decisions about providing resources to the entity - 14Integrating GAAP DefinitionGenerally Accepted Accounting Principles
-a set of rules and practices having substantial authoritative support, that are recognised as a general guidance for financial reporting purposes
-Statutory rules (standards) and interpretations
-Concepts and principles developed over time - 15Qualitative Characteristics and Restraint on Financial Reporting -Fundamental Characteristics-Relevance:
.Provides a basis for predictions and confirms or corrects previous expectations
-Faithful Representation:
.Complete, neutral and free from material error
.Depicts the economic substance
.Unbiased
.Judgements and estimates reflect best available information - 16Qualitative Characteristics and Restraint on Financial Reporting -Enhancing CharacteristicsComparability - between different companies - between different years of same company
Verifiability - Faithful representation - Independent observer consensus
Timeliness - Capable of influencing decisions
Understandability - Able to be understood by proficient users - 17Qualitative Characteristics and Restraint on Financial Reporting -Constraint on Financial ReportingCost versus Benefit
-Costs of preparing financial reports should not exceed the benefits to be derived from the reports - 18Definition, Recognition and Measurement of Elements in Financial Reports -Elements-Assets
-Liabilities
-Equity
-Income
-Expenses
Conceptual Framework defines elements and set out criteria for recognition - 19Definition, Recognition and Measurement of Elements in Financial Reports -Assets DefinitionA resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
- 20Definition, Recognition and Measurement of Elements in Financial Reports -Assets Recognitiona) It is probable that the future economic benefits will flow to the entity
-Refers to degree of uncertainty
-Use all evidence to assess probability
-If improbable that benefits will flow to entity beyond current period, it is recorded as expense
b)The asset has a cost or value that can be measured with reliability
- eg. purchase price
- Could also be estimated value, ex. provision for warranties - 21Definition, Recognition and Measurement of Elements in Financial Reports Liabilities - Definition'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' (para. 49(b))
- 22Definition, Recognition and Measurement of Elements in Financial Reports Liabilities - Recognitiona)It is probable that an outflow of resources embodying result from the settlement of a present obligation:
-Not dependant upon occurrence of certain events outside the entity's control
b)The amount at which the settlement will take place can be measured reliably - 23Definition, Recognition and Measurement of Elements in Financial Reports Contingent LiabilitiesLiabilities that do not satisfy recognition criteria are classified as Contingent Liabilities
-ex. unresolved lawsuits, potential liability from a tax audit in progress
Contingent liabilities are not recognised in financial statements, but must be disclosed in notes to financial statements if considered to be material - 24Definition, Recognition and Measurement of Elements in Financial Reports Equity - Definition'the residual interest in the assets of the entity after deducting all it's liabilities' (para. 49(c))
-Can't be independently defined (residual)
-Equity = Assets - Liabilities
Affected by gains/losses, owner's activities (capital investments, drawings, dividends) - 25Definition, Recognition and Measurement of Elements in Financial Reports Income - Definition'Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases of equity, other than those relating to contributions from equity participants'(para. 70(a))
-linked to definition of assets and liabilities - 26Definition, Recognition and Measurement of Elements in Financial Reports Revenue and Gains - DefinitionRevenue
- increases in economic benefits arising in the course of ordinary activities
ex. sales revenue, rent, dividends
Gains
-Other increases in economic benefits that do not arise from ordinary course of business
ex. gains from sale of non-current asstes - 27Definition, Recognition and Measurement of Elements in Financial Reports Income - Recognition'An increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably
-Occurs simultaneously with recognition of increases in assets or decreases in liabilities
-Common practice: recognise revenue when it is earned - 28Definition, Recognition and Measurement of Elements in Financial Reports Income - Recognition (Revenue on sale of goods) - 5a)Entity has transferred to the buyer the significant risks and rewards of ownership of goods
b)entity retains neither continuing managerial involvement nor effective control over goods sold
c)Can be measured reliably
d)Probable that economic benefits of revenue will flow to entity; and
e)The associated costs can be measured reliably - 29Definition, Recognition and Measurement of Elements in Financial Reports Income - Recognition (Revenue for Provision of Services) - 4a)Amount can be measured reliably
b)It is probable economic benefits associated with transaction will flow to entity
c)The stage of completion of transaction at the reporting date can be measured reliably; and
d)The costs incurred for transactions and costs to complete transaction can be measured reliably - 30Definition, Recognition and Measurement of Elements in Financial Reports Expenses - Definition'Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets r incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants'
-Linked to definition of assets and liabilities - 31Definition, Recognition and Measurement of Elements in Financial Reports Expenses include...Expenses
-Decreases in economic benefits that arise in the ordinary activities of entity
e.g. cost of sales, salaries
Losses
-Expenses that do not neccessarily arise in the ordinary course of business
e.g. loss from natural disasters - 32Definition, Recognition and Measurement of Elements in Financial Reports Expenses - Recognition-When 'a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably'
- 33Definition, Recognition and Measurement of Elements in Financial Reports Expenses - Recognition - Matching Principle is...Matching Principle:
When resulting directly or jointly from the same transaction sa revenues, expenses should be recognised on the basis of a direct association with revenues - 34Measurement of the Elements of Financial Reports Definition is...'The process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the statement of financial position and income statement'
- 35Measurement of the Elements of Financial Reporting 4 Measurement bases are...-Historical Cost
-Current Cost
-Realisable (settlement) Value
-Present Value - 36Measurement of the Elements of Financial Reporting 4 Measurement bases Historical Cost means...Assets are recorded amount paid or consideration given at time of acquisition
Liabilities recorded at amounts expected to be paid to satisfy the Liability in the normal course of business - 37Measurement of the Elements of Financial Reporting 4 Measurement bases Current Cost means...Assets are carried at the amount that would have to be paid if the same asset was acquired currently
Liabilities are carried at the undiscounted amount that would be required to settle the obligation currently - 38Measurement of the Elements of Financial Reporting 4 Measurement bases Realisable (Settlement) Value means...Assets are carried at the amount that could currently be obtained by selling the asset in an orderly disposal
Liabilities are carried at settlement value - 39Measurement of the Elements of Financial Reporting 4 Measurement bases Present Value means...Assets are carried at the present discounted value of future net cash inflows that is expected to be generated in the normal course of business
Liabilities are carried at present discounted value of the future net cash outflows required to settle liabilities in the normal course of business - 40Integrating GAAP Interrelationships between aspects of GAAP Name 3...- Reporting enities required to prepare reports that are useful for decision making, usefulness dependant on information's qualitative characteristics
-Accounting period concept, revenue and expense recognition criteria are interrelated
-Definition of assets, liabilities, equity, income and expenses linked. - 41Future Developments in Financial Reporting -Sustainability Reporting dimensions-Social Dimension - focuses on impact of business activities on individuals and communities
-Environmental Dimension - focuses on impact of activities on environment
-Disclosures are currently voluntary but are increasing pressures on companies to measure, report and reduce environmental impact - 42Future Developments in Financial Reporting -XBRLExtensive Business Reporting Language
-To make analysis and reporting of financial information more consistant and reliable
-Achieved by developing vocabularly that can affect format of financia information throughout complete life cycle of information - 43Conceptual Framework Defines 4 Elements of Financial Statements-Statement of Profit or Loss
-Statement of Changes in Equity
-Statement of Financial Position
-Statement of Cash Flows - 44Statement of Profit or Loss (P&L)Purpose is to repot entity's success or failure over a period of time
-lists entity's income (revenues and gains)
-lists entity's expenses
-Income less expenses = Profit (loss) - 45Statement of Changes in EquityReports total comprehensive income for the period and other changes in equity such as adjustments to retained earnings for:
-changes in accounting standards
-changes in accounting policies
-correction of errors
-gains recognised directly in equity accounts
Also reports details of transactions with the owners of company
RETAINED EARNINGS refers to accumulated profit that has not been distributed to shareholders - 46Statement of Financial PositionReports assets and claims to those assets (liabilities and equity) at a specific point in time
-based on accounting equation Assets = Liabilities + Equity
-Assets must balance to claims on assets - 47Statement of Cash FlowsMain purpose is to provide financial information about cash receipts and cash payments of an entity for a specific time period
-Informs users about what is happening to entity's most important resource (CASH) - 48Interrelationships between financial statements-Statement of financial position linked to P&L and changes in equity by the ending retained earnings balance
- Cash flows is linked to financial position by the ending cash balance - 49Classified Statement of Financial PositionGrouping similar assets and liabilities together
-Most entities use current and non-current categories
-Classified to improve user's understanding - 50Classified Statement of Financial Position Current vs. Non-Current AssetsCurrent assets - Cash, assets held for purpose of being traded, or expected to be converted to cash or used in business within one year
Non-current - Assets not expected to be sold or consumed within one year - 51Classified Statement of Financial Position Current vs. Non-Current LiabilitiesCurrent liabilities - obligations to be paid within the coming year or the entity's operating cycle
Non-current liabilities - Obligations that are not classified as current - 52The Financial Reporting Environment -Institutions and Groups Regulating and Monitoring Financial Reporting (AU)-Australian Securities and Investments Commission
-Financial Reporting Council
-Australian Accounting Standards Board
-Urgent Issues Group
-Australian Securities Exchange
-Professional Accounting Bodies
NZ - External Reporting Board - 53Concepts and Principles Underlying Accounting-Monetary principle
-Accounting entity concept
-Accounting period concept
-Going concern principle
-Cost principle
-Full disclosure principle - 54Accounting Period ConceptThe life of a business entity can be divided into artificial periods
-useful reports covering those periods can be prepared for the entity - 55Monetary PrincipleItems included in the accounting records must be able to be expressed in monetary terms (e.g. $)
- 56Accounting Entity ConceptEvery entity can be separately identified and accounted for
-Owner's transactions are separate from entity's transactions - 57Going Concern PrincipleBusiness will remain in operation for the foreseeable future
- 58Cost PrincipleAll assets are initially recorded in the accounts at their purchase price or cost
-To provide useful information, sometimes entities need to deviate from cost principle (e.g. revaluation of non-current assets) - 59Full Disclosure PrincipleAll circumstances and events that could make a difference to decision-making process should be disclosed in the financial statements
- 60Transaction AnalysisProcess of identifying the specific effects of transaction and events on the accounting equation
- 61The Accounting EquationAssets = Liabilities + Liabilities
-Equation must always balance - 62Debits and Credits Side and AbbreviationTotal debits must equal total credits
Debit - left side abbreviated as Dr.
Credit - Right side abbreviated as Cr. - 63Debit and Credit Procedures AssetsIncrease of asset is Debit
Decrease is Credit - 64Debit and Credit Procedures LiabilitiesIncrease of liability is Credit
Decrease of liability is Debit - 65Debit and Credit Procedures Equity - Share Capital, Retained Earnings, DividendsShare Capital - Increase Credit, Decrease Debit
Retained Earnings - Increase Credit, Decrease Debit
Dividends - Increase Debit, Decrease Credit - 66Debit and Credit Procedures Revenue and ExpensesRevenues - Increase Credit, Decrease Debit
Expenses - Increase Debit, Decrease Credit - 67An account is...An individual accounting record of increases and decreases in a specific asset, liability or equity item
- 68DEAD CLICKDebit
Expenses
Assets
Drawings
Credit
Liabilities
Income
Capital - 69Steps in Recording Process1. Analyse each transaction in terms of it's effects on accounts
2. Enter transaction info in a journal
3.Transfer (POST) journal info to appropriate accounts in ledger - 70Chart of AccountsLists all entity's ledger numbers and names
Like together sections of ledger are grouped and in order that they appear in the financial statements - 71The General LedgerContains all asset, liability and equity accounts
- 72Transferring Journal Entries to Ledger Accounts (Posting) - Steps1. Enter date in account to be debited
2. Enter name of ledger account to be credited
3. Enter amount to be debited
4 Tick account no. in general journal to show entry is posted
5. Repeat steps 1-4 for the credit side - 73The Trial Balance Definition and steps...A list of all the accounts and their balances at a given time listed in order as they appear in general ledger - Proves mathematical equality of debits and credits
1. List account numbers, titles and balances
2. Total debit and credit columns
3. Verify equality of debit and credit columns - 74Limitations of a Trial BalanceErrors not detected in a trial balance;
-A transaction is not journalised
- A correct journal entry is not posted
-A journal entry is posted twice
-Incorrect accounts used in journalising or posting
-Offsetting errors made in recording the amount of a transaction - 75Steps to Balancing Ledger Accounts1. Add both sides up and see which side is larger
2. Put a total for both sides equal to the larger side
3. Insert a balance on smaller side to make total correct - carried down (c/d) or carried forward (c/fwd) balance
4. Insert same balance on the opposite side of the account, but below the total. This is the brought forward (b/fwd) or brought down (b/d) balance
Informações
- Descrição
- Overview of first four weeks of Accounting.
- Criado por
- Charlotte Marko
- Visualizações
- 51
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