Accounting Knowledge All. Assumptions + Qualitative Characteristics

Accounting Assumptions

The generally accepted principles that influence the way Accounting information is generated

Accounting Entity Assumption

The assumption that the records of the 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.

Going concern assumption

The assumption that the existing entity will continue to operate in the future, and its records are kept on that basis.

Period assumption

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.

Accrual Basis Assumption

The assumption that revenues are recognised when earned and expenses are recognised when incurred, so profit is calculated as revenue earned in a particular period, less expenses incurred in that period

Qualitative Characteristics

The qualities of the information in financial reports.

Relevance

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 make changes to their previous evaluations.

Materiality (Not a qualitative characteristic) → Understanding concept assists in recognising

An entity-specific aspect of relevance, based on the nature or magnitude of an item, that says information must be included if omitting, mistating or obscuring it could influence decisions that users make.

Faithful Representation

Faithful representation states that financial information should be a faithful representation of the real-world economic event it claims to represent

Verifiability

Verifiability states that financial information should allow different knowledgeable and independent observers to reach a consensus (agree) that an event is faithfully represented.

Comparability

Comparability states that financial information should enable users to identify and understand similarities in and differences among items when compared with similar information about other entities, and with similar information about the same entity for another period or another date.

Timeliness

Timeliness states that financial information should be available to decision-makers in time to be capable of influencing their decisions.

Understandability

Understandability states that financial information should be understandable or comprehensible to users with a reasonable knowledge of business and economic activities and presented clearly and concisely.

Assets

A present economic resource controlled by an entity as a result of past events.

Liability

A present obligation of an entity to transfer an economic resource as a result of past events.

Owner’s Equity

The residual interest in the assets of an entity after the deduction of its liabilities.

Revenue

Increase in assets or decrease in liabilities that result in increases in owner’s equity, other than those relating to contributions from the owner.

Expenses

Decreases in assets or increases in liabilities that results in decreases in owner’s equity, other than those relating to distributions to the owner.

Financial Data

The raw facts and figures on which financial information will be based

Financial Information

Financial data that has been sorted, classified and summarised into a more usable and understandable form

Non-Financial Information

Any information that cannot be found in the financial statements, and is not expressed as dollars and cents, or is reliant on dollars and cents for its calculation

Current Asset

A present economic resource controlled by an entity as a result of past events that is reasonably expected to be converted to cash, sold or consumed within the next 12 months

Non-current Asset

A present economic resource controlled by an entity as a result of past events that are expected to be used by the business entity for a number of years and are not held for resale.

Current Liability

A present obligation of an entity to transfer an economic resource as a result of past events that needs to be settled within 12 months after the end of the reporting period.

Non-Current Liability

A present obligation of an entity to transfer an economic resource as a result of past events that are not required to be settled within 12 months after the end of the reporting period.

Product Cost

A cost incurred in order to bring inventory into a condition and location ready for sale that can be allocated to individual units of inventory on a logical basis

Period Cost

A cost incurred in order to bring inventory into a condition and location ready for sale that cannot be allocated to individual units of inventory on a logical basis