Accounting Fundamentals: Chapter 1 - Introduction to Accounting

These flashcards cover fundamental concepts, principles, and definitions related to accounting, as outlined in the lecture notes.

What is accounting?

Recording, analysing, and summarising business transactions.

Purpose of financial statements

Provide useful info for decision-making by stakeholders.

What are the main financial statements?

Statement of Financial Position (SoFP) and Statement of Profit or Loss (SoPL).

SoFP shows?

Assets, liabilities, and equity at a specific date.

SoPL shows?

Income minus expenses over a period.

GAAP

Generally Accepted Accounting Practice.

Companies Act 2006 requirement

Limited companies must publish annual financial statements.

IESBA Code of Ethics (PIPCO)

Professional competence, Integrity, Professional behaviour, Confidentiality, Objectivity.

Sustainability standards

Guidelines for reporting environmental, social, and governance (ESG) performance.

What are the fundamental qualitative characteristics of financial information?

Relevance and Faithful Representation.

Enhancing qualities (CVTU)?

Comparability, Verifiability, Timeliness, Understandability.

Fair presentation

Neutral and error-free statements.

Business entity concept

The business is treated as a separate entity from its owners, so only the business’s transactions are recorded.

Going concern concept

The business is assumed to continue operating for the foreseeable future (at least 12 months).

Accrual basis

Transactions are recorded when they are earned or incurred, not when cash is received or paid.

Historical cost convention

Assets and liabilities are recorded at their original purchase cost.

What are capital and revenue items (including CAPEX & REVEX)?

• Capital (CAPEX): Money spent on long-term assets the business will use for a long time.

• Revenue (REVEX): Money spent on day-to-day running of the business.

What is the accounting equation (including credit transactions)?

Assets = Liabilities + Equity; credit transactions are paid later.

Define equity

What would be left for the owner if the business paid all its debts.