VCE Accounting Assumptions, Qualitative Characteristics and Accounting element

The Period Assumption

Reports are prepared for a particular period of time in order to obtain comparability of results and to determine profit.

Accrual Basis Assumption

Revenue is recognised in the period it is earned and expenses are recognised in the period they are incurred or consumed so profit can be calculated.

The Going Concern Assumption

Financial reports are prepared on the assumption that the existing entity will continue to operate into the future.

Accounting Entity Assumption

The records of the business are kept completely separate from those of the owner of the business as well as other businesses.

Timeliness

This means having information available to decision-makers in time to be capable of influencing their decisions.

Understandability

This requires financial information to be comprehensible to users with reasonable knowledge of business and economic activities.

Relevance

Financial information is related to making an economic decision and directly assists the user in forming predictions about outcomes of past, present and future events.

Faithful Representation

Information that is reported represents real world economic events or benefits and is complete, free from material error and bias.

Comparability

Information in the financial reports enables users to identify and understand similarities in, and differences among, items.

Verifiability

Financial information should ensure that different knowledgeable and independent observers of reports reach the same conclusion.

Revenues

These are increases in assets (or decreases in liabilities) that result in increases in owner's equity, other than those relating to contributions from the owner.

Expenses

These are decreases in assets (or increases in liabilities) that result in a decrease in owner's equity, other than those relating to distributions to the owner.

Assets

A present economic resource controlled by the entity as a result of past events.

Liabilities

A present obligation of the entity to transfer an economic resource as a result of past events.

Owner's equity

The residual interest in the assets of the entity after deducting all its liabilities.