Accounting foundation definitions

Asset

An asset is a present economic resource

controlled by the entity,

as a result of past events,

which has the potential to produce future economic benefits.

Liability

Is a present obligation of the entity,

as a result of past events,

which will result in a transfer of economic resources

Owners equity

OE = A - L

Revenue

Economic inflow during ordinary activates resulting in a:

Increase in asset or decrease in liability, that causes in increase in owners equity,

Expense

Economic outflow during ordinary activities resulting in a:

Decrease in asset or increase in liability, that results in decrease in owners equity,

Period Assumption(Accounting 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 (Accounting assumption)

Revenue earned is matched against expenses incurred in the period

Going concern assumption (Accounting assumption)

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

Entity assumption (Accounting assumption)

The business is treated as a separate entity from its owner

Verifiability (Qualitative Characteristic)

Information should be presented accurately and be supported by evidence such as documents

Comparability (Qualitative Characteristic)

financial information should enable users to identify and understand similarities and differences among items when compared

Timeliness(Qualitative Characteristic)

financial information should be available to decision-makers in a timely manner

Understandability (Qualitative Characteristic)

financial information should be understandable to users with a reasonable knowledge of business and economic activities,

Relevance (Qualitative Characteristic)

financial information must be relevant and capable of making a difference to the decisions made by users

Faithful Representation (Qualitative Characteristic)

financial information should be a faithful and honest representation of the real-world economic event it claims to represent

Liquidity

the ability of a business to meet its short-term debts as they fall due

Net Realisable Value (NRV)

The estimated selling price of inventory minus any costs incurred in its selling, marketing or distribution.