NCEA level 3 accounting: accounting concepts

Asset (A)

A resource currently controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

liability (L)

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Income (I)

Increases in economic benefit in form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity. Not a contribution by owner.

Expense (E)

Decreases in economic benefits in form of outflows or depletions of assets or increases of liabilities that result in decreases in equity.
Not drawings

Equity(Eq)

Residual interest in the assets of the entity after deduction of the liabilities.

Qualitative characteristics

-Relevance
-Faithful representation

Underlying characterstics

-understandablity
-vertifiablity
-compariablity
-timeliness

Elements

-Assets
-Liabilities
-income
-expenses
-equity

Measurement base

-Historical cost

Assumptions

-going concern
-Accrual basis

Notions

-Monetary measurement
-period reporting
-Accounting entity

Going Concern

Entity assumes it will continue into the foreseeable future

Accural basis

All transcations are recorded when occured, and are reported to the accounting period they relate. e.gL Balance day adjustments

Monetary measurement

Same monetary units used to calculate with unlike terms
eg: USD convert to NZD

Accounting Entity

All transactions are recorded for the business.
Personal and business is separate.

Reporting period

Entity's life is divided into equal time periods
-Measures profit, finanical postition, cash flow, on a regular time basis
compare time periods

Historical cost

Transactions are recorded at original cost to entity

capital expenditures

Benefits the business for more then one year. i.e purchase of asset

revenue expediture

Day-to-day expense to maintain assets.

Relevance

Finanical info, capable of making decisions.
Must be:
predictive value, confirmatory or both

Faithful representation

Complete - all info in order to understand
Netural -unbias
Free from error - True and fair

Materiality

Info is material if mistaking it could influence decisions to entity.

Vertiability

Assures users info is complete, neutral, and free from error with proof that supports this.

Timeliness

Info avaliable with in time to decision making, to help with the decision making. Info is less helpful when its older.

Comparability

Able to compare:
-performances per accounting period
-Financial info of one entity to similar entities

Understandability

Financial info clearly presented to understand

Deprecation

Systematic allocation of the depreciable amount of an asset over its useful life.

Financial position - purpose

Details of A's, L's and Equtity
Determine liquidity and financial structure owner can determine their return/investment

Financial position - Limitations

No current market value
Some amounts are estimated
No non-finanical info

Cash flow statement - purpose

Info about cash received and paid
shows increase or decrease in cash in accounting period
opening and closing bank bals

Cash flow statement - Limitations

No non-financial info
No details of financial performance

Income statement - purpose

Financial performance
details of I and E
Profit/loss
Determine profitablitiy

Income statement - Limitations

Some amounts are estimated
No non-financial info

Accounting polices

Inform users of GPFR accounting policies adopted in preparation of those FR.
Allows users to understand significance of info contained in GPFR

NZ GAAP

Specific rules, practices, and procedures relating to particular circumstances, broad concepts, and principles of general application, on which GPFS are prepared.

Balance between benefit and cost

Benefits gained from info should exceed cost of providing it

purpose of NZIAS and NZIFRS

To provide NZ equivalents to international accounting standards and financial reporting standards that reflect NZ's situation.
Provide guidance on NZGAAP and how to record and report transactions.