SAC 1 Preparation

• Accounting Assumptions: Period, Accrual Basis, Going Concern and Entity.
• Qualitative Characteristics: Timeliness, Understandability, Relevance, Faithful Representation, Comparability and Verifiability
• Accounting Elements: Assets, Liabilities, Owner's equity, Revenue and Expenses.
• Period Assumption - The assumption that reports are prepared for a particular period of time in order to obtain comparability of results.
• Accrual Basis Assumption – The assumption that revenues are recognised when earned and expenses are recognised when incurred.
• Going Concern Assumption - The assumption that the business will continue to operate in the future, and its records are kept on that basis.
• Entity Assumption – The assumption that the records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as those from those of other entities.
• Timeliness - Having information available to decision-makers in time to be capable of influencing their decisions.
• Understandability - Requires financial information to be comprehensible to users with reasonable knowledge of business and economic activities.
• Relevance - financial information must be capable of making a difference to the decisions made by users.
• Faithful Representation - The information reported must be a faithful representation of the real-world economic event it represents and is free from material error and bias.
• Comparability - financial information should be able to be compared with similar information about other entities.
• Verifiability - financial information should allow different knowledgeable and independent observers and source documents to reach a consensus.
• Assets – a present economic resource controlled by an entity as a result of past events and is also likely to bring future economic benefit.
• Liabilities - A present economic 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 an entity after the deduction of its liabilities.
• Revenues - An increase in assets or decrease in liabilities that result in increases in owner’s equity except for contributions by the owner.
• Expenses - Decreases in assets or increases in liabilities that result in decreases in owner’s equity.
• Current vs Non current assets - Current assets are expected to be converted to cash, sold or consumed within the next 12 months, whereas, non-current assets are expected to be used for more than the next 12 months.
• Current vs Non-current liabilities - Liabilities are classified as current if it is reasonably expected they will be settled within 12 months, whereas, liabilities that are not required to be settled within 12 months are classified as non-current.
• Accounting Equation - A=L+OE
• Owners equity balance sheet - Capital, capital contribution, net profit, drawings.