MN-2573-_Midterm_revision

What is the definition of Accounting according to the American Accounting Association?

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions.

Who are the Users of Financial Information?

Customers, Business, Government, Public, Competitors, Managers, Employees, Owners, Suppliers, Lenders, Investment analysts.

What is the concept of Relevance in accounting information?

Information that has the ability to influence decisions, including predictive and confirmatory value.

What does Materiality refer to in accounting?

The significance of an error or omission that would affect a user's decision, measured against a threshold.

What are the Fundamental Qualities of Accounting Information?

Relevance and Faithful representation.

What does Faithful representation entail?

Completeness, Neutrality, and Freedom from errors.

Define Comparability in the context of financial statements.

The financial statements should enable users to compare the performance of the company over time or against competitors.

What is Verifiability in accounting information?

The ability to confirm the information through direct verification or reference to external sources.

What does Timeliness mean in accounting reports?

Information must be available to users in enough time to make informed decisions.

What are the Main Elements of Financial Statements?

Assets, Liabilities, Equity, Revenue, and Expenses.

What defines an Asset according to accounting principles?

A potential future economic benefit that arises from past transactions and can be reliably measured.

What are Non-current Assets?

Assets used for long-term operations, not for sale in the ordinary course of business, and can be either tangible or intangible.

What comprises Liabilities in accounting?

Obligations that a company expects to pay to parties other than the owners.

What is the definition of Revenue?

Income earned by a business from the sale of goods or provision of services.

What is an Expense in accounting terminology?

The cost incurred by a business to earn revenue, such as wages, rent, and cost of goods sold.

What is the Accounting Equation?

Assets = Liabilities + Equity.

Differentiate between Prepaid Expenses and Accrued Expenses.

Prepaid Expenses are paid in advance for goods/services yet to be received, while Accrued Expenses are incurred but not yet paid.

What is Bad Debt in accounting?

A trade receivable that is deemed irrecoverable, resulting in a reduction of income and trade receivables in financial statements.

What is the FIFO method in inventory management?

The First In, First Out method, where items purchased first are sold first.

Define Depreciation as it relates to Non-current Assets.

The amount of economic benefits derived from tangible non-current assets consumed over time.

What is meant by Amortisation in relation to Intangible Assets?

The systematic allocation of the depreciable amount of an intangible asset over its useful life.

What is the objective of IAS 40 regarding Investment Property?

Property held to earn rentals or for capital appreciation, not for operational use.

What must be capitalised according to IAS 23 concerning Borrowing Costs?

Borrowing costs that directly relate to the acquisition, construction, or production of a qualifying asset.