How can we help?

You can also find more resources in our Help Center.

29 terms

Accounting Unit 3 Week 1

What is Accounting? The Balance Sheet, Accounting Principles and Characteristics
STUDY
PLAY
Accounting Entity principle
All relevant items for the business entity must be reported, which therefore excludes personal transactions of the owner.
Accounting Standards
A set of regulations that outline acceptable accounting practices and procedures.
Statements of Accounting Concepts (SACs)
A framework of accounting, including qualitative characteristics and definitions of the key elements of accounting.
Assets
Resources controlled by a business entity as a result of past events that have future economic benefits that will flow to the entity.
Comparability
A quality of accounting that demands that financial reports are prepared in a consistent manner so that they may be compared from one reporting period to the next, and over similar companies within the same industry group.
Conservatism principle
A cautious or prudent approach to accounting, with a tendency to stay on the 'safe side'. This principle states that losses are recorded when probable, but gains only when certain so that liabilities and expenses are not understated and assets and revenues are not overstated.
Consistency principle
The requirement that consistent accounting methods be applied from one reporting period to the next so that comparison can be made.
Expenses
Decreases in economic benefits during a reporting period in the form of outflows or depletions of assets or increases in liabilities that reduce owner's equity (except for drawings by the owner).
Going concern principle
The assumption that a business will continue to operate forever into the future
Historical cost principle
The original cost of an item at the time it was purchased.
Liabilities:
Present obligations of an entity that require an outflow of the entity's resources.
Monetary unit principle
The measurement of financial events in monetary terms.
Owner's equity
The residual interest of an owner in a business entity, determined by deducting liabilities from assets.
Relevance
A quality of accounting that demands that all information that may influence the users of a report be disclosed so that decision makers are fully informed.
Reliability
A quality of accounting that emphasizes the need to be able to check accounting information against business documents.
Reporting period principle
A period of time over which financial events are recorded and reported.
Revenues
Increases in economic benefits during a reporting period, usually gained from the provision of goods and services. Revenue is the inflows of economic benefits (or savings in outflows) in the form of increase in assets (or decrease in liabilities) that increase owner's equity (except for capital contributions by the owner).
Understandability
A quality of accounting that demands that accounting information is presented in a simplified, understandable fashion.
Balance Sheet
A general purpose accounting report that states an entity's assets, liabilities, and owner's equity at a particular point in time.
Current assets
A resource controlled by the entity as a result of past events from which a furture economic benefit is expected to flow to the entity in the next 12 months. (Economic resources that are normally expected or intended to be turned into cash or used up within the next 12 months.)
Debtors
Customers of a busines that owe the firm money becuase they have been sold goods or services on credit.
Current liabilities
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits in the next 12 months. (Economic obligations of the business entity due for repayment within the next 12 months.)
Trade creditor
Is a supplier that provides stock to a business on credit. That is, trade creditors are suppliers of the goods that the business trades in on a regular basis.
Sundry creditors
Is a supplier that has provided goods other than the stock items that a business trades in on a day-to-day business. When creating an account, the name of the creditor should be noted as part of the account title. Trade creditors must be kept separate from sundry creditors.
GST Liability
An obligation of a business to the Taxation Office because the business has collected (or has charged) more GST than it has paid to its suppliers.
GST Refund
An amount owing to a business by the "Taxation Office because the business has paid (or been charged) more GST than it has collected from its customers.
Non-current assets
A resource controlled by the entity as a result of past event from which a future economic benefits in more than 12 months. Economic resources that are normally expected or intended to be used within the business for a period of time greater than 12 months.
Non-current liabilities
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits in more than 12 months. In summary, obligations of the business entity due for repayment over a period of time greater than 12 months.
Working Capital
Current assets minus current liabilities.