accounting flash card

list the 5 qualitative characteristic

- relevance -reliability comparability -understandability -materiality

the purpose of quantitative characteristic

the purpose of quantitative characteristic of financial statements is to provide useful information in financial reports so that management , investor and creditor and the other users are able to make operational, investment,credit and decisions

list 5 users of accounting information

-employees -ATO -creditor -investor -regulatory authorities -suppliers

outline the feature of a sole proprietorship

a sole proprietorship is a form of business ownership where one person operates a business as an owner/manager/ operator. the owner normally supplies a small start up capital, uses his/her own skills,receives all of the profits and suffers any loses. the owner is personally liable for debts of the business.

define accounting

accounting is an information system that identifies records and communicates the economic events of a business to interested users.

expenses

decreases in economic benefits in the form of outflows of assets(or incurrences of liabilities) that result in decreases in equity other than those relating to equity participants. (Example; rent, wages ,drawing are not expenses)

income

increases in an economic benefits in the form or inflows or enhancements of assets(or decreases of liabilities) that result in equity, other than those relating to equity participants. (example: service fees,sales note, contribution of capital is not revenue)

distinguish etween internal and external users of financial statement.

internal users are those individuals that operate the business whereas external users are individuals or group that interact with the business. manages, employees(internal) suppliers,ATO(external)

define liabilities

present obligations of an entity arising from the past transactions or events, the settlement of which is expected to result in an outflow of resources.

explain the period assumption

requires the business life to be divided into accounting periods for the purpose of reporting to users.

define assets

resources controlled by the entity as a result of past transactions or events from which future economic benefits are expected to flow to the entity.(example; cash, inventory, equipment, vehicles, building)

explain the accounting entity assumption

the accounting entity assumption requires that the economic activities of the entity be kept separate from the owner and other entities.(ex: do not combine the bank accounts of the entity and the owners.

explain the ongoing concern assumption

the ongoing concern assumption assumes that the life of the business is ongoing well into the future. (as a result we can report some assets as long term, and some liabilities are long term.

explain the accrual basis accounting

under the accrual basis accounting incomes and expenses are recorded when they are earned or incurred even if the cash has not changed hands.( cash income and credit income both are recorded)