Accounting - Conceptual Basis

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kristenanna
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33776
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Accounting - Conceptual Basis
Updated:
2010-09-09 23:29:23
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Accounting NCEA Conceptual Basis Level
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accounting conceptual basis
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  1. Define Asset
    • Resources that are:
    • controlled by the entity
    • generate future economic benifit
    • result of a past transaction
    • probable that future economic benifit will flow to the entity
    • value measured reliably
  2. Define Liability
    • future sacrifices of economic benifits (assets)
    • entity is obliged to make
    • result of a past transaction
    • probable an outflow of resources embodying economic benifits will flow from the entity
    • value measured reliably
  3. Define Equity
    Residual value of assets less liabilities ie Assets - Liabilities = Equity
  4. Define Expense
    • Decrease in economic benifit (decrease assets increases liabilities)
    • Decrease in Equity
    • Not Drawings
    • A decrease in future economic benifit related to a decrease in assets or increase in liabilities has arisen
    • Value measured reliably
  5. Define Income
    • Increase in economic benifits (increase assets, decease in liabilities)
    • Increass Equity
    • Not contribution by the owner
    • Increase in future economic benifit related to an increase in assets or decrease in liabilities has arisn
    • Value can be measured reliably
  6. Accounting Equation
    Assetes + Liabilities = Liabilities + Equity + Income
  7. Define Revenue Expenditure
    Is of recuring nature and afects the income statement. Doesn't create an asset.
  8. Capital Expenditure
    Is a one off spending that usually creates an asset. Includes Getting asset ready for use and any purchases/payements that increase the value of the original asset.
  9. Accounting Entity Concept
    That the financial affairs of the owner must be kept separate from those of the business.
  10. Periodic Reporting Concept + Reasoning
    The life of the business is divided up into time period of equal length for reporting purposes. This is done so owners can measure Net Profit for the year and compare with other years. This helps users of the reports make financial desicions.
  11. Monetary Measurement Concept
    All transactions are recorded in the same currency. (If an item purchased from overseas it is converted according to the current exchange rate)
  12. Going Concern Concept
    The assumption that the entity is going to continue to operate within the foreseeable future. (balance sheet values are recorded at historical cost not current market value as no intention to sell/liquidate the entity.
  13. Accrual Basis
    transations are recognised when they occur. The are recorded in the accounting records and reported in the financial statements of the accounting period to which they relate. This means income and expences are recorded at the time of the transaction regardless of whether cash has changed hands yet.
  14. Understandability
    information by the financial statements must be understandable by users who have a reasonable knowledge of teh business and a willingness to study the information with reasonable diligence. However, this does not mean complex information is ommited if teh information will influence decisions.
  15. Relevance
    to be useful, information must be relevant to the decision making needs of users. Information has the quality of relevance when it influences the economic decisions of users - by helping users to evaluate present or future events by helping users to confirm or correct their past evaluations.
  16. Relevance - Materiality
    the relevance of information is affected by its nature (what account it is) and materiality (size/value). Information is material is material if its ommission or mistatement coudl affect the decisions of financial users. This allows entities to round to the nearest thousand dollars, group insignificant items together or even write off small capital items as an expense because the ammount is small in value.
  17. Reliability
    Information is reliable when it is free from material error or bias and can be depended upon by user to faithfully represent what it represents.
  18. Reliability - Faithful Representation
    must be accurate and represent faithfully what has happened.
  19. Reliability - Neutrality
    Must be free from bias and backed up by eveidence eg source documents.
  20. Reliability - Prudence
    • accountants must use a degree of caution when making estimates or when more than one estmation method is available.
    • Must not overstate assets or incomes or understate expences or liabilities.
  21. Comparability
    • users of financial statements must be able to compare results over time or with those of other entities to identify trends.
    • Financial statements must be prepared consistently from year to year. ( can change methods or policy as long as new is more effective)
  22. Timeliness
    information must be up to date and provided without undue delay, otherwise will lose relevance to decisions being made.
  23. Balance between benifit and cost
    benifits of having the information must outwiegh the cost of gettign the information. especially relevant to smaller entites.
  24. True and fair view
    should be prevented fairly (not misleading) and show a true (accurate) picture of the entities situation
  25. Define Purpose of Accounting
    To communicate financial information to interested parties to help aid decision making.
  26. Define straight line depreciation
    The same ammount is depreciated every year
  27. Define Diminishing Value
    The ammount of depreciation decreses every year and is calculated yearly on current value.
  28. Defince units of use depreciation.
    Ammount of depreciation is calculated according to how much the asset is used.
  29. Statement of Accounting Policies: Name and Nature
    These financial statements are prepared for ____ a sole proprietorship spcialising in ______.
  30. Statement of Accounting Policies: Measurement Base
    These financial statements have been prepared on the basis of historical cost.
  31. Statement of Accounting Policies: Property Plant and Equipment
    Property, plant and equipment are stated at cost and, except for land, depreciated.
  32. Statement of Accounting Policies: Depreciation
    The cost less residual value of property plant and equipment (except for land) are depreciated over their estmated useful lives.
  33. Statement of Accounting Policies: Accounts Recievable
    Recievable are stated at estimated value after allowing for doubtful debts. Bad debts are expenced during the period in which they are identified.
  34. Statement of Accounting Policies: Inventories
    Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in, first out basis (or weighted average basis)
  35. Statement of Accounting Policies: Investments
    Investmetns are stated at cost.
  36. Statement of Accounting Policies: GST
    All ammounts are stated exclusive of GST ammounts, except for recievable and payables, which are stated inclusive of GST
  37. Statement of Accounting Policies: Changes in Accounting Policies
    There have been no significant changes in the accounting policy. All policies have been applied on a basis consistent wit those used in previous years.
  38. Purpose of Income Statement
    To calculate the profit (deficit) for the given period.
  39. Purpose of Balance Sheet
    To report an entities assets, liabilities and equity, ata point in time.
  40. Purpose of Cash Flow Statement
    To report where the money was recieved from and what the money was spent on during the period. It shows how the bank balance changed during the period.
  41. Purpose of Statement of Accounting Policies.
    To inform the users of the financial statements about the policies, guidelines and procedures used in preparing those reports.

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