Basic Accounting Concepts

A set of practice flashcards covering the Malaysian financial reporting framework, accounting concepts, the basic and expanded accounting equations, and double-entry bookkeeping rules.

What are the four main components of the topic Basic Accounting Concepts?

Financial reporting framework in Malaysia, accounting concepts, accounting equations, and the double-entry system.

When did Malaysia effectively begin requiring compliance with IFRS-based standards, and when did full convergence occur?

Compliance began for accounting periods on or after 1 January 2006, and full convergence took place on 1 January 2012.

What does GAAP stand for, and what is its purpose?

Generally Accepted Accounting Principles; it is a set of standards, principles, and procedures providing a framework for preparing consistent, comparable, and reliable financial statements.

Which regulatory body in Malaysia adopted the International Financial Reporting Standards (IFRS)?

Malaysian Accounting Standard Board (MASB).

What is the Malaysian Private Entities Reporting Standard (MPERS) specifically tailored for?

Private entities in Malaysia, particularly smaller and medium-sized entities, by providing simplified standards with reduced disclosure requirements.

List four regulatory bodies involved in the financial reporting framework in Malaysia.

1. Malaysian Accounting Standards Board (MASB), 2. Malaysian Institute of Accountants (MIA), 3. Securities Commission Malaysia (SC), and 4. Companies Commission of Malaysia (SSM).

Define the Historical Cost concept.

Acquired assets and services should be recorded at their actual cost, which is considered a reliable measure.

According to the Economic Entity concept, how should a business owner's personal transactions be recorded?

Personal transactions should be kept separate from business transactions and recorded as drawing rather than business assets or expenses.

What does the Going Concern concept assume about a business?

The enterprise will continue in operation for the foreseeable future to carry out its existing objectives.

How does the Consistency concept define the use of accounting principles?

A company should use the same principles and methods from year to year to permit meaningful analysis of trends.

What is the Materiality concept?

An item is material when it is likely to influence the decision of a reasonably prudent investor or creditor, determined by comparing the amount to items like total assets or net income.

Under the Revenue Recognition concept, when is revenue recorded?

Revenue is recognized in the period it is earned, such as when merchandise arrives at the buyer or services are rendered, regardless of when cash is received.

What is the primary goal of the Expense Recognition (Matching) concept?

To find out the actual amount of revenue and expenditure for a financial period by recording expenses in the period they were incurred to generate revenue.

Define the Prudence (Conservatism) concept.

A concept that warns not to overestimate assets and revenues or underestimate liabilities and expenses; revenue is only recorded when certain, while expenses are recorded when probable.

What is the basic Accounting Equation?

$$Assets = Liabilities + Owner's Equity$$

What is the expanded Accounting Equation that includes income statement elements?

$$Assets = Liabilities + (Capital + Revenues - Expenses - Drawings)$$

What are the two sub-categories of Non-Current Assets mentioned in the notes?

1. Tangible (fixed) assets (e.g., Buildings, Equipment) and 2. Intangible assets (e.g., Trademarks, Patents).

How are Current Liabilities defined?

Debt that is due to be settled in less than a year, such as Accounts Payable and Unearned Revenue.

What effect do Drawings have on Owner's Equity?

Drawings reduce the value of owner's equity.

In the double-entry system, what do the terms 'Debit' and 'Credit' signify regarding the T-account?

Debit refers to the left side of the account, while Credit refers to the right side of the account.

According to the rules of debit and credit, how do you record an increase in Assets vs. an increase in Liabilities?

An increase in Assets is recorded as a DEBIT, while an increase in Liabilities is recorded as a CREDIT.

Which accounts have a normal DEBIT balance when they increase?

Asset, Expense, and Drawings accounts.

Under Fair Value Measurement, how is 'fair value' defined?

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.