Basic Accy questions
Card Set Information
Basic Accy questions
Week 1 of class
What is Accounting Concerned with?
It is concerned with analysing and communicating financial information
What are Assets?
A resource controlled by the entity as a result of past events and from which future economic benefit are expected to flow to the entity
What are Liabilities?
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity (economic benefits)
What is Owners Equity?
The residual interest in the asset of the entity after deducting all its liabilities.
What is the accounting equation
Assets - Liabilities = Owners Equity
What are the two accounts under owners equity?
Share Capital and Retained Earnings
What is Share Capital?
Represents the initial investment in the company
What are Retained Earnings?
Represents profits left in the business by owners (plus net profit from Income statement).
What are expenses?
Out flows of economic benefits from the normal course of the business
What is income?
Inflows of economic benefits from the normal course of the business
What re the 5 accounting conventions studied?
1. Business/ Accounting convention
2. Going concern convention
3. Accounting period convention
4. Dual aspect convention (double entry accounting)
5. Accrual Accounting
What is the Business Accounting Convention?
Holds that for accounting purposes, the business and its owner(s) are treated as
separate and distinct.
What is the Going concern convention?
Holds that the business is continuing indefinitely
Valuation of assets and liabilities based on business continuing normal course
What is the Accounting period convention?
Holds that the life of the business is divided into given periods of time (usuallyone year) for the purpose of collecting financial information.
Need to make judgment about when transaction occurred
What is the Dual aspect convention (double entry accounting)?
Holds that each transaction has two aspects and that each aspect must be recorded in
the financial statements.
Seen in the accounting equation …
What is Accrual Based Accounting?
accounting recognises income/expenses on the basis that it has been earned/incurred irrespective of whether the cash receipt is in arrears or in advance.
What are the 4 characteristics of accounting studied?