accounting 12

• revenue is an increase in assets or decrease in liabilities, that results in an increase in owner's equity
• qualitative characteristics are relevance, faithful representation, comparability, verifiability, timeliness, understandability.
• relevance requires financial information to be capable of making a difference to the economic decisions made by users. it helps form predictions about the outcomes of the past, present or future events. it confirms or changes their previous evaluations by providing suitable feedback.
• faithful representation states that financial information must represent real-world economic events, which is complete, neutral and free from material error.
• comparability allows users to identify and understand similarities and differences among items. information is more useful when compared to similar information from other entities or the same entity from another period or date.
• verifiability requires financial information to be ensured that different knowledgeable and independent users can reach a consensus that a particular depiction of an event is faithfully represented. this is done by the retention of source documents to record transactions and uphold auditing to hold the accounting professional accountable.
• timeliness requires information to be available to decision-makers in time to be capable of influencing decisions.
• understandability requires information to be comprehensible to users with reasonable business and economic knowledge, information should be presented clearly and concisely.
• the accounting assumptions are entity, accrual basis, going concern, period.
• entity states that the records of assets, liabilities and business activities of the business entity is kept separate from those of the owner and other entities. this is to evaluate the performance of the business entity and make decisions appropriately.
• going concern states that an entity will not be wound up in the near future and will continue to operate indefinitely. this ensures the reporting and classification of assets and liabilities can be classified into current and non-current.
• period states that reports are prepared for a particular period of time, like a month or a year, in order to obtain comparability of results.
• an asset is a present economic resource controlled by the entity as a result of past events, that has the potential to produce future economic benefits.
• a current asset is a present economic resource that is reasonably expected to be converted to cash, sold, or consumed by the entity, producing economic benefits, within 12 months after the end of the reporting period.
• a non-current asset is a present economic resource that is expected to be used by the business to produce economic benefits for at least 12 months and is not held for the resale as daily trading transactions.
• a liability is a present obligation of the business to transfer an economic benefit as a result of past events.
• a current liability is a present obligation that is reasonably expected to be settled within 12 months after the end of the reporting period.
• a non-current liability is a present obligation that is not expected to be settled within 12 months after the end of the reporting period.
• owner's equity is the residual interest in the assets of an entity after deducting all its liabilities. it is what the business owes to the owner. capital represents the total amount contributed by the owner. drawings represents the total amount the owner has withdrawn from that reporting period.
• expenses are decreases in assets or increases in liabilities that result in a decrease of owner's equity, other than those relating to distribution to the owner.
• accrual basis states that revenue is recognised in the specific period in which the expected inflow of economic benefits can be measured in a faithful and verifiable manner, it was earned. expenses are recognised in the specific period in which the consumption of goods and services can be measured, when they are incurred.
• qualitative characteristics are rules that ensure that financial and accounting reports are prepared in a way that is useful to all users.
• an interest-only loan is when the borrower repays the principal of the loan when the loan period has expired, and only pays the interest generated during the period of the loan.
• an instalment loan is when the borrower makes scheduled repayments of the principal throughout the life of the loan.
• working capital is the value of current assets minus current liabilities. it is the liquid funds of a business that can be used in its day-to-day trading operations.
• a balance sheet is an accounting report that states the financial position of a business at a particular point in time.
• a tax invoice is a business document used to provide evidence of transactions that include GST.
• a cash receipt is used to verify cash has been received from an external entity.
• an EFT receipt is used when an EFT payment has been made.
• a bank statement is used to summarise all cash transactions between a bank and its customer.
• an invoice shows the creation of a debt when a credit transaction has occurred.
• a memo is a note used to record internal transactions.
• statements of account is issued to credit customers, summarising transactions between the customer and the supplier.
• an order form is a request of goods or services from a supplier.
• a quotation provides a potential customer with a cost estimate for goods or services.