Elements of the Reports
A present obligation of an entity to transfer an economic resource as a result of past events
What is a Liability?
Financial information should be of the real-world economic event it claims to represent: complete, free from material error and neutral
What is Faithful Representation?
The assumption that the records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities
What is the Accounting Entity Assumption?
Complete the following Entry
Bank + 550, GST Clearing +50, Sales + ?
(Must Identify What side)
What is crediting sales 500?
The process used to generate financial information from financial data leading to the provision of advice to assist decision-making
What is the Accounting Process?
A present economic resource controlled by an entity as a result of past events that is not held for resale and is reasonably expected to be used for more than the next 12 months
What is a Non-current asset?
Source Documents
What is Verifiability?
The assumption that the business will continue to operate in the future, and its records are kept on that basis
What is the Going Concern Assumption?
5/10, n/30
What are credit terms?
Rules of Double-Entry Accounting
What are
Every transaction will affect at least two items in the Accounting equation
The Accounting equation must always balance
Inventory Write-down, Inventory Loss
What is an expense?
Financial information must be capable of making a difference to the decisions made by users by helping them to form predictions and/or confirm or change their previous evaluations
What is Relevance?
The assumption that reports are prepared for a particular period of time, such as a month or year, in order to obtain comparability of results
What is the Period Assumption?
A brief description of a transaction recorded in the General Journal, including a reference to the relevant source document
What is a narration?
Net Cash Flows from Operations/Average Current Liabilities
What is Cash Flow Cover?
Advertising, Interest, Bad Debts
What is an expense?
The need to represent financial data in graphical form
What is Understandability?
Elements of the reports are recognized and reported when they satisfy the definitions and recognition criteria for those elements
What is the Accrual Basis Assumption
Identify the following transaction
Accounts Receivable - +3300, GST Clearing +300, Sales - +3000, Cost of Sales - +1500, Inventory - -1500
What is a credit sale of inventory?
a change made to a revenue or expense account on balance day so that revenue accounts show revenues earned and expense accounts show expenses incurred in a particular Period
What are Balance Day Adjustments?
Allowance for Doubtful Debts
What is a negative current asset?
the size or significance of financial information, determined by considering whether omitting it or misstating it from the reports could influence decisions that users make
What is materiality?
The need to record additional information
What is the Accrual Basis Assumption?
What is the transaction that is verified by a Credit Note?
What is an inventory return?
Benefits of the perpetual system of inventory recording
What are
1) reordering of inventory is assisted
2) inventory losses and gains can be detected by comparing the balances of the inventory cards against the physical inventory count
3) fast and slow-moving lines of inventory can be identified