Introduction to Accounting and Financial Statements

These flashcards cover fundamental concepts and definitions in accounting and financial statements, as outlined in the provided lecture notes.

What is the definition of accounting?

Identification, measurement, recording, and reporting of transactions.

What is the purpose of accounting?

To provide economic information regarding financial activities of an entity to users of financial statements.

What are the five elements of financial statements?

Assets, Liabilities, Equity, Income, Expenses.

What is the financial period?

The period between the measurement of one financial position and the next, such as from 1 March 2020 to 28 February 2021.

What is accrual accounting?

Transactions must be recorded when they occur, not necessarily when cash is received or paid.

Define external users of financial statements.

Individuals or entities not directly involved with the entity who desire to study formal financial statements.

What is the duality concept (double entry principle)?

Each transaction affects at least two accounts, where one account is debited and another is credited.

What are qualitative characteristics of financial statements?

The characteristics that enhance the usefulness of financial information, including relevance, faithful representation, comparability, verifiability, understandability, and timeliness.

What is the statement of changes in equity?

A financial statement that shows the changes in owner’s interest in the business during a specific period.

What is the accounting equation?

Assets = Liabilities + Equity.

What types of entities are there in accounting?

Non-profit entities, public companies, private companies, sole traders, partnerships, and close corporations.

What is meant by the term 'going concern' in accounting?

The principle that financial statements should be prepared assuming the entity will continue its operations in the foreseeable future.

What is the significance of the financial statements?

They provide a formal record of the financial activities of a business, including the strengths and weaknesses at a specific time.

What is a statement of profit or loss?

A financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.

Explain the qualitative characteristic of 'materiality'.

Information is material if omitting it or misstating it could influence the economic decisions of users.

What role do internal users play in accounting?

Internal users, such as employees and management, require specific financial information for planning and decision-making.