Fundamentals of Financial Accounting - Chapter 3: Financial Statements Framework

Comprehensive vocabulary flashcards covering the purposes, components, and terminology of formal financial statement frameworks as outlined in Chapter 3.

International Accounting Standards Board (IASB)

The body responsible for issuing the IFRS Standards that govern general purpose financial statements.

General purpose financial statements

Reports prepared in accordance with IFRS Standards to provide financial information to users who cannot demand customised reports.

Separate financial statements

Another term used to refer to general purpose financial statements that apply to private and public companies.

Objective of Financial Statements

To provide information about a company's financial position, financial performance, cash flows, and notes that is useful for economic decision-making.

IFRS 18 General Features

Presentation features including fair presentation, going concern, accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, comparative information, and consistent presentation.

Going concern

A general feature of financial statement presentation where it is assumed the entity will continue to operate for the foreseeable future.

Accrual basis of accounting

A feature identifying that transactions are recorded in the periods in which they occur, regardless of when cash is exchanged.

Materiality and aggregation

The principle of grouping similar items together and ensuring significant information is not obscured by unimportant details.

Offsetting

The practice of subtracting liabilities from assets or expenses from income; an entity shall not do this unless required or permitted by an IFRS.

Complete set of financial statements

Consists of the Statement of Profit or Loss, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, and Notes to the Financial Statements.

Statement of Profit or Loss

The financial report that tells if a company is profitable or not by reporting performance for a period and measuring profit attributable to equity holders.

Statement of Financial Position (SOFP)

A report that answers questions about debt levels and the value of assets versus liabilities, representing the three elements of the basic accounting equation.

Statement of Cash Flows (SCF)

A report used for cash management to determine if a company has enough cash to run its business, based on the cash basis of accounting.

Dual Aspect Concept

The notion embodied by the Basic Accounting Equation: $Assets = Owner's equity + Liability$.

Debit (Dr)

Arbitrarily the left-hand side of an account; used to record increases in assets and expenses.

Credit (Cr)

Arbitrarily the right-hand side of an account; used to record increases in liabilities, owner's equity, and revenues.

Non-current assets

Assets intended for use for more than a year, such as Property, plant and equipment, and long-term investments.

Current assets

Assets held in the form of cash, or expected to be converted into cash or used within one year, such as inventory and trade receivables.

Share Capital

The investment made in the company by the shareholders.

Retained Earnings

Cumulative earnings that have not been distributed to shareholders, including net profit from the current year.

Non-current liabilities

Interest-bearing debts repayable over a period of more than one year, such as mortgage bonds and debentures.

Current liabilities

Debts repayable within one year, including bank overdrafts, trade payables, and SARS tax liability.

Other Comprehensive Income (OCI)

A section of the Statement of Comprehensive Income (SOCI) that includes changes in net assets not resulting from transactions with owners.

Gross profit

The result of the calculation: $Revenue - Cost\,of\,sales$.

Finance costs

The sub-heading in the Statement of Comprehensive Income specifically for interest expenses.

Revenue (Net)

Income from the sale of merchandise after subtracting returns, discounts, and Value-added tax (VAT).

Functional classification

A method of classifying expenses based on their use (e.g., distribution costs, administrative expenses) rather than their nature.

Statement of Changes in Equity (SOCE)

A statement that summarises changes in equity accounts, reconciles opening and closing balances, and transfers profit or loss to retained earnings.

Historical cost

The primary measurement basis used to prepare financial statements, with exceptions like investment property or share investments.

IFRS for SMEs Section 8

The specific guidance covering the scope, structure, and content of Notes to the Financial Statements.

Unmodified opinion

An auditor's opinion indicating that the financial statements are fairly presented.

Adverse opinion

An auditor's opinion issued when there is a disagreement and the financial statements are not fairly presented.

Disclaimer of opinion

An auditor's report issued when the auditor does not express an opinion due to significant uncertainty.

Qualified opinion

An auditor's opinion that uses the phrase "Except for…" to indicate specific areas of disagreement or uncertainty.