Principles of Financial Accounting (C2531FF / AFE3581)

Flashcards covering the foundational principles of financial accounting, various domains, GAAP standards, and qualitative characteristics of financial reporting based on lecture notes.

Social Science

The broad discipline of human knowledge to which Accounting belongs, specifically as a part of Economics science.

Accounting

The orderly and systematic identification and recording of monetary values of the economic transactions of an individual entrepreneur or a business Enterprise, including reporting results and providing financial information for decision making.

Statement of Comprehensive Income

A financial statement used to summarize transactions, also referred to as the Income Statement or Profit and Loss.

Statement of Financial Position

A financial statement used to summarize transactions, also commonly known as the Balance sheet.

Financial Accounting

A domain of accounting that caters primarily for external users who exist outside the entity and are not directly involved in management or operations.

Management Accounting

A domain of accounting that caters primarily for internal users, such as management and operational personnel, who require information for day-to-day management.

Generally Accepted Accounting Practice (GAAP)

A set of assumptions, concepts, principles, methods, procedures, and standards that serve as guidelines when preparing information for users.

Basic principles

The main rules that accountants follow when preparing financial information as part of GAAP.

Assumptions

Concepts or things that accountants accept as true when following GAAP.

Constraints

The limitations or conditions encountered when applying accounting rules.

South African Institute of Chartered Accountants (SAICA)

An example of an international accounting profession body that has developed Generally Accepted Accounting Practice.

Accounting Practices Board (APB)

The body that approves GAAP after adopting frameworks issued by the International Accounting Standards Board (IASB).

International Financial Reporting Standards (IFRS)

The current set of standards in which most accounting guidelines are reflected.

Internal users

Users of accounting information within the business, specifically identified as Owners (Shareholders), Company management, and Employees.

External users

Users of accounting information outside the business, including Competitors, Customers, Suppliers, Lenders, and Governments.

Relevance

A fundamental qualitative characteristic where information is useful for decision-making and plays both a forecasting (predictive) role and a confirming role.

Faithful representation

A fundamental qualitative characteristic requiring that information in financial statements represents transactions complete, neutral, and free from error.

Comparability

An enhancing characteristic allowing users to identify trends in an entity's performance over time and evaluate it against other entities.

Verifiability

An enhancing characteristic where different, independent users or analysts can reach the same conclusions regarding the presentation of a financial statement.

Timeliness

An enhancing characteristic implying that financial information must be made available on time or as required to remain useful.

Understandability

An enhancing characteristic where financial statements are presented such that a person with reasonable knowledge of accounting can comprehend them.