Accounting Principles and Adjustments

Flashcards reviewing key accounting principles, international standards, and year-end adjustments for financial statement preparation.

Accounting rules are necessary for understanding statements and allowing __ between businesses.

comparison

Accounting principles, also known as concepts, define how __ should be recorded.

financial activities

The main accounting principles include business entity, consistency, duality, going concern, historic cost, matching, materiality, money measurement, __ and realisation.

prudence

The __ principle treats a business as separate from its owner.

business entity

The __ principle requires consistent accounting methods from period to period.

consistency

The principle of __ states that every transaction is recorded twice.

duality

The __ principle assumes the business will operate indefinitely.

going concern

The __ principle states assets and expenses are recorded at original purchase cost.

historic cost

The __ principle requires matching revenue and costs of the same period.

matching

The __ principle states insignificant items do not need separate recording.

materiality

The __ principle states only information expressed in money is recorded.

money measurement

The __ principle requires profits should not be overstated and losses should not be understated.

prudence

The __ principle states revenue is recognised when ownership legally transfers.

realisation

International accounting standards ensure statements are prepared using the same __ internationally.

rules and guidelines

Quality of information in statements is measured by comparability, relevance, reliability, and __.

understandability

Useful financial statement information can be __ with data from different periods or businesses.

compared

Financial statements can be used as the basis for __.

financial decisions

Reliable information in financial statements should be capable of being depended upon, independently verified, free from bias, free from errors and prepared with suitable __.

caution

__ depends on the clarity of information and user abilities.

Understandability

Money spent on non-current assets is __.

capital expenditure

Money spent on running a business day-to-day is __.

revenue expenditure

Money received from sources other than normal trading is a __.

capital receipt

Money received from normal trading activities is a __.

revenue receipt

Inventory is valued at the lower of cost and __.

net realisable value

Cost of inventory includes purchase price and __.

additional costs

Net realisable value is estimated receipts less costs of completing or __ the goods.

selling

Adjustments to accounting records for accurate profit/loss view are __ adjustments.

year-end

An unpaid expense at the end of a period is an __ expense.

accrued

In accrued expenses, the amount transferred to the income paid statement should represent the expense for the __.

accounting period

In accrued expenses, the balance of the expense account is a current __ in the statement of financial position.

liability

In accrued expenses, debit the __ account and credit the cash book.

expense

An expense paid relating to a future period is a __ expense.

prepaid

In prepaid expenses, match the __ period.

right

In prepaid expenses, the balance represents a short term __.

benefit

Prepaid expenses involve debiting the expense account and crediting the __.

cash book

Stationery inventory at year-end can be treated as a __ expense.

prepaid

Opening balances must be considered in second year of __.

trading

Accrued income is income not yet __ at period end.

received

In the income statement, accrued income is __ to the total received.

added

In accrued income, the balance of the income account that's equal to the amount not yet received is brought down on the __ side of the ledger account.

debit

In accrued income, debiting the cash book with the amount __.

received

Prepaid income is income received relating to a accounting period.

future

In prepaid income, debit the income account with the amount received in __.

advance

The balance of the prepaid income account will be included as a current __ in the statement of financial position

liability