Conceptual Framework

Flashcards covering key concepts from Chapter Three on qualitative characteristics of financial information, main financial statements, accounting principles, and relevant definitions.

What are the main financial statements discussed in the chapter?

The main financial statements are the Statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Change in Equity, and Statement of Cash Flows.

What are the five key elements of financial statements?

Assets, Liabilities, Equity, Income, and Expenses.

Define the qualitative characteristic of relevance in financial information.

Relevance refers to the capacity of the information to make a difference in decision-making by helping users evaluate past, present, or future events.

What is the purpose of the going concern assumption in accounting?

It assumes that a business will continue to operate for the foreseeable future, typically at least the next twelve months.

How should remaining inventory be valued if a business is not a going concern?

It should be valued at its forced sale price, which may be lower than the cost or selling price.

What does the accruals basis of accounting state?

Transactions should be recognized when they occur, not when cash is received or paid.

What is the matching concept in accounting?

The matching concept dictates that expenses incurred in earning revenue must be recorded in the same accounting period as the revenue.

Define prudence in the context of financial reporting.

Prudence means never to anticipate profits but to anticipate all losses, ensuring that assets and income are not overstated.

What is the conceptual framework in accounting?

The conceptual framework provides the underlying principles and guidelines for preparing financial statements and is not an accounting standard.

List the qualitative characteristics that make financial information useful.

Relevance, Faithful Representation, Comparability, Verifiability, Timeliness, and Understandability.