FlashCards - ACF110.txt

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FlashCards - ACF110.txt
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ACF110 - Accounting Fundamentals SP4 2011
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  1. Accounting
    The process of identifying, measuring, communicating economic information about an entity to a variety of users for decision-making purposes. Birt, p. 4.
  2. Business Transactions
    Occurrences that affect the assets, liabilities and equity items in an entity and must be recognised (recorded). Birt, p. 4.
  3. Relevant Information
    Information that makes a difference in decision making. Birt, p. 4.
  4. Identifying
    Transactions that affect the entity's financial position are taken into consideration. They must be able to be reliably measured and recorded. Birt, p. 5.
  5. Measuring
    This stage includes the analysis, recording and classifying of business transactions. Birt, p. 5.
  6. Communicating
    Accounting information is communicated through various reports such as income statements, balance sheets and statements of cash flows. Birt, p. 5.
  7. Decision Making
    Accounting information is used for a range of decisions by external and internal users. Birt, p. 5.
  8. Bookkeeping
    The recording and summarising of financial transactions and the preparation of basic reports. Birt, p. 5.
  9. Internal Users
    Managers of the entity who use the information to assist in various management functions. Birt, p. 5.
  10. External Users (Stakeholders)
    Parties outside the entity who use information to make decisions about the entity. Birt, p. 6.
  11. Financial Accounting
    Preparation and presentation of financial information for users to enable them to make economic decisions regarding the entity. Birt, p. 7.
  12. Historical Cost
    Original amount paid for an asset. Birt, p. 7.
  13. Financial Statements
    A set of statements directed towards the common information needs of a wide range of users. Birt, p. 7.
  14. Statement of Cash Flows
    Statement that reports on an entity's cash inflows and cash outflows for a specified period. Birt, p. 8 & 245.
  15. Income Statement
    Statement that reports on the income and expenses of an entity for a period, and the resulting profit or loss. Birt, p. 8 & 198.
  16. Balance Sheet
    Statement that reports on the assets, liabilities and equity of an entity at a particular point in time. Birt, p. 8 & 139.
  17. Management Accounting
    Field of accounting that provides economic information for use by management in internal planning and decision making. Birt, p. 8.
  18. Australian Securities and Investments Commission (ASIC)
    Government body responsible for regulating companies, company borrowings, and investment advisers and dealers. Statement that reports on an entity's cash inflows and cash outflows for a specified period. Birt, p. 11.
  19. Corporations Act 2001 (Cwlth)
    National scheme of legislation, administered by ASIC, dealing with the regulation of companies and the securities and futures industries in Australia. Birt, p. 12.
  20. Australian Securities Exchange (ASX)
    Australian marketplace for trading equities, government bonds and other fixed-interest securities. Birt, p. 12.
  21. Market Rules
    Rules governing the operations and behaviour of participating entities of the ASX and affiliates. Birt, p. 13.
  22. Listing Rules
    Rules governing the procedures and behaviour of all ASX-listed companies. Birt, p. 13.
  23. International Financial Reporting Standards (IFRSs)
    Accounting standards that are prepared and issued by the International Accounting Standards Board (IASB). Birt, p. 14.
  24. Australian Accounting Standards Board (AASB)
    Australian body responsible for developing accounting standards for application to Australian entities. Birt, p. 14.
  25. Disclosing Entity
    An entity that issues securities that are quoted on a stock market or made avilable to the public via a prospectus. Birt, p. 15.
  26. Financial Reporting Council (FRC)
    A statutory body established under the Australian Securities and Investments Commission Act responsible for overseeing the standard-setting process in Australia. Birt, p. 15.
  27. General Purpose Financial Statements (GPFS)
    Financial statements prepared to meet the information needs common to external users. Birt, p. 18
  28. Special Purpose Financial Statements (SPFS)
    Financial reports prepared to suit a specific purpose. Birt, p. 18.
  29. Relevance (Characteristic)
    Information that is of value to users in making and evaluating decisions about the allocation of scarce resources. Birt, p. 18.
  30. Reliability (Characteristic)
    Information that is without bias or due error, and will faithfully represent transactions and events. Birt, p. 18.
  31. Comparability (Characteristic)
    Information that is comparable for an entity at one timer and over time, and between entities at one time and over time. Birt, p. 18.
  32. Understandability (Characteristic)
    Information that is understandable without sacrificing relevance or reliability. Birt, p. 18.
  33. Profit
    Income less expenses for a reporting period. Birt, p. 19 & 198.
  34. Timeliness (Constraint)
    Information that is reported within a timeframe (usually within 3 months of the end of the period) that makes it relevant. Birt, p. 20
  35. Asset
    A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Birt, p. 20 &112.
  36. Liability
    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. Birt, p. 20 & 112.
  37. Equity
    The residual interest in the assets of the entity after all its liabilities have been deducted. Birt, p. 20 & 112.
  38. Income
    Inflows or other enhancements of assets or decreases of liabilities that result in an increase in equity other than those relating to contributions from equity participants. Birt, p. 20 & 112 & 207.
  39. Expenses
    Decreases in economic benefits in the form of outflows or depletions of assets or incurrences of liabilities that result in a decrease in equity other than those relating to distributions to equity participants. Birt, p. 20 & 112 & 210.
  40. Corporate Governance
    Direction, control and management of an entity. Birt, p. 87.
  41. Stakeholder
    An individual or group with an interest in the success of an entity. Birt, p. 91.
  42. Stakeholder Theory
    Theory that espouses the purpose of the entity is for the good of all stakeholder groups (not just for the purpose of maximising shareholder wealth). Birt, p. 92.
  43. Corporate Social Responsibility (CSR)
    An entity's obligations to society in general and to the environment. Birt, p. 92.
  44. Triple bottom line
    Considers the economic, social and environmental performance of an entity. Birt, p. 94
  45. Accounting Entity Concept
    Business transactions are recorded separately from personal transactions involving the owner(s) because the business is regarded as a separate legal entity from the owner(s). Birt, p. 37.
  46. Sole Trader
    Individual who controls and manages a business, and is solely liable for all business debts. Birt, p. 37.
  47. Australian Business Number (ABN)
    Identifier issued by the Australian Taxation Office (ATO) for certain dealings with the ATO and other government departments and agencies. Birt, p. 38.
  48. Australian Taxation Office (ATO)
    The feral government's main revenue-collection agency. Birt, p. 38.
  49. Unlimited Liability
    When the individual or partnership is fully liable for the needs of the entity. Birt, p. 38.
  50. Partnership
    Group of people who come together in business with a common goal of making a profit. Birt, p. 40.
  51. Partnership Agreement
    Agreement between business partners that contains the details of the partnership. Birt, p. 40.
  52. Mutual Agency
    Each partner is seen as an agent for the entity and has a right to enter into contracts for that entity. Birt, p. 41.
  53. Company
    Business structure that has a separate legal identity from its shareholders and is taxed on its taxable income. Birt, p. 42.
  54. Shareholders
    Part-owners of a company. Birt, p. 42.
  55. Legal Entity
    Entity that is separate from its owners and recognised at law. Birt, p. 42.
  56. Dividends
    Distribution of company profits to shareholders. Birt, p. 42.
  57. Limited Liability
    Shareholder liability is limited to the extent of the value of their shares or guarantee.
  58. Australian Company Number (ACN)
    A nine-digit number allocated to a company to ensure that it has adequate identification when transacting business. Birt, p. 43.
  59. Business Activity Statement (BAS)
    A single form used by entities register for GST to report their business tax entitlements and obligations to the ATO. Birt, p. 44.
  60. Ordinary Shares
    The most commonly traded type of shares in Australia. Holders of ordinary shares are part-owners of a company and may receive payments in cash (called dividends). This class of shares has no preferential rights to dividends or capital on winding up. Birt, p. 45.
  61. Preference Shares
    Shares that rank before ordinary shares in the event of liquidation of the issuing company and usually receive a fixed rate of return. Birt, p. 45.
  62. Limited by Shares
    Public companies limited by shares are companies that offer shares to the public, and that must have at least three director and at least one shareholder. Birt, p. 45.
  63. Limited by Guarantee
    The owners guarantee to contribute an agreed amount of cash or other assets to the company in the event of the company winding up. Birt, p. 46.
  64. No-liability Company
    Companies that have shareholders who have no liability for the outstanding debts of the company, due to the risky nature of the company's operations. Birt, p. 46.
  65. Unlimited Companies
    Companies characterised by members who have no limit placed on their liability (and usually restricted to investment-type entities). Birt, p. 47.
  66. IPO (Initial Public Offering)
    Offering (floating) shares to the public for the first time. Birt, p. 47.
  67. Trust
    A business structure in which a person holds property for others who are intended to benefit from the property or income of that property. Birt, p. 49.
  68. Trustee
    A person or persons, or a proprietary limited company, personally liable for all debts incurred on behalf of the trust. Birt, p. 49.
  69. Family (or discretionary) Trust
    A business structure usually established for the benefit of one family and its members. Birt, p. 49.
  70. Unit Trust
    A business structure that is established for the benefit of various parties rather than family members. Birt, p. 49.
  71. Disclosing Entity
    An entity that issues securities that are quoted on a stock market or made available to the public via a prospectus. Birt, p. 57.
  72. Arm's Length Distance
    Parties deal from equal bargaining positions, neither part is subject to the other's control or dominant influence, and the transaction is treated with fairness, integrity and legality. Birt, p. 109.
  73. Entity Concept
    Separation of business transactions from any personal transactions of the owner(s). Birt, p. 109.
  74. Drawings
    Withdrawals of assets from the entity by the owner(s) that are recorded as decreases in equity. Birt, p. 110.
  75. Source Documents
    Original documents verifying the business transaction. Birt, p. 110.
  76. Cash Transactions
    Business transactions involving the exchange of cash for goods or services. Birt, p. 110.
  77. Credit Transactions
    Business transactions involving an exchange of goods and services on the proviso that cash will be received at a later date. Birt, p. 110.
  78. Personal Transactions
    Transactions of the owner unrelated to the business's operations. Birt, p. 110.
  79. Business Events
    Events that will probably affect the entity without any immediate exchange of goods and services between the entity and another entity. Birt, p. 111.
  80. Accounting Equation
    Expresses the relationship between the assets controlled by the entity and the claims on those assets. Birt, p. 112.
  81. Duality
    Describes how every business transaction has at least two effects on the accounting equation. Birt, p. 112 & 140.
  82. Single-entry errors
    Errors created by entering only one part of a transaction. Birt, p. 119.
  83. Transposition Errors
    Errors created by transposing (or switching) digits when recording transactions. Birt, p. 119.
  84. Investing Decision
    Decisions that involves (a) the acquisition and sale of investments and productive non-current assets using cash, and (b) lending money and collecting on those loans. Birt, p. 139.
  85. Financing Decision
    Decision involving the mix of debt and equity financing chosen by the entity. Birt, p. 139.
  86. Liquidity
    Ability of an entity to meet its short-term financial commitments. Birt, p. 140.
  87. IASB Framework
    Document that sets out the objective of financial statements, assumptions underlying financial statements, qualititative characteristics of financial statements, elements of financial statements, and the recognition criteria for the elements of financial statements. Birt, p. 142.
  88. Recognition
    Recording items in the financial statements with a monetary value assigned to them. Birt, p. 144.
  89. Monetary Concept
    Use of money as the basis of quantifying items in financial statements. Birt, p. 144.
  90. Contingent
    Existence of an asset or liability arising from a past event that may be confirmed only by uncertain future events not controllable by the entity. Birt, p 146.
  91. Comparative Information
    Presentation of the financial reports of an entity for multiple years. Birt, p. 148.
  92. Parent Entity
    Entity that controls another entity. Birt, p. 149.
  93. Group (economic entity)
    Parent entity and all its subsidiaries. Birt, p. 149.
  94. Current Assets
    Cash and other assets that are expected to be converted to cash or used in the entity within one year or one operating cycle, whichever is longer. Birt, p. 153.
  95. Non-current Assets
    Assets that are not expected to be consumed or sold within one year or one operating cycle. Birt, p. 153.
  96. Current Liabilities
    Obligations that can reasonably be expected to be paid within on year or one operating cycle. Birt, p. 153.
  97. Non-current Liabilities
    Obligations that are expected to be paid after one year or outside one normal operating cycle. Birt, p.153.
  98. Operating Cycle
    Length of time it takes to acquire and sell goods and collect the cash from the sale. Birt, p. 153.
  99. Classes
    Different types of asset, liability and equity accounts found on the balance sheet. Birt, p. 154.
  100. Cash and Cash Equivalents
    Cash held at bank, on hand and in short-term deposits. Birt, p. 155.
  101. Trade Receivables (trade debtors or accounts receivable).
    Amounts due from customers for the sale of goods or services. Birt, p. 155.
  102. Inventories (stock)
    Supplies of raw materials to be used in the production process, work-in-progress and/or the finished goods the entity has available for sale. Birt, p. 155.
  103. Investments accounted for using the equity method
    Carrying value of investments in another entity where the investing entity has the capacity to control the investee entity. Birt, p. 155.
  104. Financial Asset
    Cash, a contractual right to receive cash or another financial asset, a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable, or an equity instrument of another entity calculated as the excess of the consideration paid for a business over the fair value of the net assets at acquisition date. Birt, p. 155.
  105. Derivative Financial Asset
    Financial asset whose value depends on the value of an underlying asset, reference rate or index. Birt, p. 155.
  106. Property, plant and equipment
    Tangible assets that have physical substance, are used in the operations of the entity and are not intended for sale to customers. Birt, p. 155.
  107. Agricultural assets (biological assets)
    Living animals or plants. Birt, p. 155.
  108. Intangible Assets
    Non-current, non-monetary assets that do not have a physical substance. Birt, p. 155.
  109. Identifiable Intangible Assets
    Intangible assets that can be identified (e.g. trademarks, brand names, patents, rights, agreements, development expenditure, mastheads, licences). Birt, p. 156.
  110. Goodwill
    An unidentifiable intangible asset (e.g. an established client base or reputation. Birt, p. 156.
  111. Trade payables (trade creditors or accounts payable)
    Amounts owed to suppliers for the purchase of goods or services. Birt, p.158.
  112. Provisions
    Liability class involving more uncertainty regarding the monetary value to be assigned to future sacrifice of economic benefits. Birt, p. 158.
  113. Financial Liability
    Liability that is a contractual obligation to deliver cash or another financial asset to another entity or a contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity. Birt, p. 158.
  114. Derivative Financial Liability
    Financial liability whose value depends on the value of an underlying asset, reference rate or index. Birt, p. 158.
  115. Secured Debt
    Debt with a priority claim on the entity's assets in the event of the entity's demise. Birt, p. 160.
  116. Share Capital
    Funds contributed to a company by the owners. Birt, p. 161.
  117. Paid-Up Share Capital
    Total amount paid in by shareholders for shares in the company. Birt, p. 161.
  118. Contributed Capital
    Funds contributed to a partnership or sole trader by the owner(s). Birt, p. 161.
  119. Retained Earnings
    Cumulative profits made by the entity that have not been distributed as dividends or transferred to reserve accounts. Birt, p. 162 & 223.
  120. Reserves
    Equity accounts that originate in a variety of ways including asset revaluations (revaluation reserve), transfers of profits (general reserve) or movements in exchange rates (foreign currency translation reserve). Birt, p. 163.
  121. Minority interests in controlled entities
    Claim on the net assets of the entity that belongs to the shareholders o the controlled entity other than parent entity shareholders. Birt, p. 163.
  122. Carrying amount (book value)
    Dollar value assigned to an asset or liability on the balance sheet. Birt, p. 164.
  123. Historical Cost
    Original amount paid for an asset. Birt, p. 164.
  124. Current Cost
    Cost of replacing an asset today. Birt, p. 164.
  125. Market Value
    Amount that an entity can expect to receive from disposal in an active market. Birt, p. 164.
  126. Present Value
    Sum of the discounted cash flows associated with an item. Birt, p. 164.
  127. Fair Value
    Amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's length transaction. Birt, p. 164.
  128. Revenue
    Income arising in the ordinary course of an entity's activities. Birt, p. 199.
  129. Accrual Accounting
    Transactions and events are recorded in the periods they occur, rather than in the periods the cash is received or paid. Birt, p. 201.
  130. Cash Accounting
    Transactions are recorded in the period the cash is received or paid. Birt, p. 201.
  131. Accrued Income
    Amounts not yet received for goods or services that have been provided. Birt, p. 202.
  132. Income Received in Advance
    Amounts received from customers and recognised as liabilities before the services are performed or the goods are provided. Birt, p. 203.
  133. Accrued Expense
    Amounts not yet paid for economic benefits used or consumed. Birt, p. 203.
  134. Prepaid Expenses (Prepayments)
    Amounts paid in cash and recorded as assets until the economic benefits are used or consumed. Birt, p. 203.
  135. Depreciation
    Allocation of the depreciable amount of a depreciable asset over its estimated useful life. Birt, p. 204.
  136. Amortisation
    Allocation of the cost of an intangible asset over its estimated useful life. Birt, p. 204.
  137. Accumulated Depreciation
    Total depreciation charges for a particular asset. Birt, p. 205.
  138. Straight-line Depreciation
    Depreciation method in which depreciation expense is the same for each year of the asset's useful life. Birt, p. 205.
  139. Reducing-balance Depreciation
    Depreciation method that results in decreasing depreciation expense over the asset's useful life. Also referred to as accelerated depreciation. Birt, p. 205.
  140. Accounting Policies
    Rules and practices, having substantial authoritative backing, that are recognised as a general guide for financial reporting. Birt, p. 205.
  141. Earnings Management
    Managers' use of accounting discretion via accounting policy choices and/or estimates to report a desired level of earnings. Birt, p. 206.
  142. Distribution to Owners
    The resources (e.g. dividends) distributed to owners. Birt, p. 210.
  143. Cost of Sales
    Cost of inventory sold during the period. In a periodic inventory system, it is determined by opening inventory plus purchases less ending inventory. Birt, p. 210.
  144. Carrying Amount (Book Value)
    Dollar value assigned to an asset or liability on the balance sheet. Birt, p. 211.
  145. Impairment
    When an asset's carrying value exceeds its recoverable amount. Birt, p. 211.
  146. Extraordinary Items
    Events and transactions that are (a) outside the ordinary activities of the entity, and (b) non-recurring. Birt, p. 215.
  147. Cost of Goods Manufactured
    The total cost of materials, labour and overhead used in manufacturing the goods. Birt, p. 218.
  148. Gross Profit
    Excess of net sales revenue over the cost of sales. Birt, p. 219.
  149. Earnings before interest and taxation (EBIT)
    Profit before net interest and taxation expense. Birt, p. 220.
  150. Net finance costs
    Interest income less interest expense (including finance lease charges). Birt, p. 220.
  151. Earnings before interest, tax, depreciation and amortisation (EBITDA)
    The profit before interest, taxation and depreciation/amortisation expense. Birt, p. 220.
  152. Pro forma earnings
    Earnings that are not in accordance with GAAP earnings. Birt, p. 221.
  153. Other comprehensive income
    All changes in equity during the reporting period other than those resulting from transactions with owners as owners. Birt, p. 221.
  154. Statement of comprehensive income
    Statement showing all items of income and expense during the reporting period, including those items recognised in determining profit or loss as well as items of other comprehensive income taken directly to equity. Birt, p. 221.
  155. Statement of Changes in Equity
    Statement showing the change in an entity's equity between two reporting dates. Birt, p. 222.
  156. Reporting Period (accounting period)
    Period of time to which the financial statements relate. Birt, p. 200.
  157. Generally Accepted Accounting Principles (GAAP)
    A set of rules and practices, having substantial authoritative support, that guide financial reporting. Birt, p. 200.
  158. Reporting Entity
    Entity with users who depend on general purpose financial statements for decision making. Birt, p. 200.
  159. Cash Flows
    Cash movements resulting from transactions with parties external to the entity. Birt et al, p. 248.
  160. Cash Inflows
    Cash movements into the entity resulting from transactions with an external party. Birt et al, p. 256.
  161. Cash Outflows
    Cash movements out of the entity resulting from transactions with an external party. Birt et al, p. 256.
  162. Cash
    Cash on hand and cash equivalents. Birt et al, p. 258
  163. Cash on hand
    Notes and coins, and deposits at call with a financial institution. Birt et al, p. 258.
  164. Cash equivalents
    Highly liquid investments and short-term borrowings. Birt et al, p. 258.
  165. Operating Activities
    Relate to the provision of goods and services and other activities that are neither investing nor financing activities. Birt et al, p. 260.
  166. Investing Activities
    Relate to the acquisition and/or disposal of non-current assets (e.g. property, plant and equipment, and other productive assets). Birt et al, p. 261.
  167. Financing Activities
    Change the size and/or composition of the financial structure of the entity (including equity), and borrowings not falling within the definition of cash. Birt et al, p. 262.
  168. Direct Method
    Method of preparing a statement of cash flows that discloses major classes of gross cash receipts and gross cash payments. Birt et al, p. 264.
  169. Indirect Method
    Method of preparing a statement of cash flows that adjusts profit or loss for the effects of transactions of a non-cash nature and deferrals or accurals of operating revenue and expenses. Birt et al, p. 264.

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