Accounting Applications and Qualitative Characteristics

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

Entity

The assumption that the records of the business activities are kept completely separate from the owner as well as from any other entities

Going Concern

The assumption that the business will continue to operate in the future and its records are kept on that basis

Accrual Basis

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

Timeliness

Financial information should be available to decision makers in time to be capable of influencing their decisions

Understandability

Financial information should be presented clearly and concisely so that users can understand information

Relevance

Information included in financial reports should make a materially significant difference to decisions made by the users of the information

Faithful Representation

Financial information should be a faithful representation of the real-world economic event it represents: complete, free from material error and neutral (without bias)

Verifiability

Financial information should allow different knowledgeable and independent observers to reach a consensus that an event is faithfully represented.

Comparability

Reports should be able to be compared with similar information about other entities and with similar information about the same entity for another period

Current Assets

Economic resources controlled by the entity as a result of past events with the potential to produce economic benefits within the next 12 months

Non-Current Assets

Economic resources controlled by the entity as a result of past events with the potential to produce economic benefits for a period of time longer than 12 months

Current Liabilities

Present obligations of an entity to transfer economic resources as a result of past events within the next 12 months

Non-Current Liabilities

Present obligations of an entity to transfer economic resources as a result of past events in a period of time that is longer than 12 months

Owner’s Equity

The residual value of the assets of an entity after deducting all its liabilities

Revenue

Increases in assets or decreases in liabilities that result in an increase in owner’s equity

Expenses

Decreases in assets or increases in liabilities that result in a decrease in owner’s equity

Fair Value

The price an asset would be valued at if it were to be sold at the time it was contributed to the business

Accounts Payable Turnover

The number of days it takes for a business to repay its Accounts Payable

Accounts Receivable Turnover

The number of days it takes for a business to be paid back by its Account Receivable

Credit note verifies a …

Purchase Return

Sales invoice refers to a transaction with a …

Accounts Receivable

Purpose of a trial balance

To ensure that debits are equal to credits, so that errors can be picked up before creating other reports