Accounting definitions Test

• Revenue


  These are the increases in assets or decreases in liabilities resulting in an increase in owner equity
• Expenses


  These are the decreases in assets or increases in liabilities that result in a decrease in owners equity.
• Assets


  These are the present economic resources under the control of the entity, which have the potential to produce future economic benefits as a result of past transactions.
• Liabilities 


  These are the present obligations of an entity to transfer economic resources to another entity as a result of past transactions
• Owners Equity


  This is the residual amount after liabilities have been deducted from assets
• Timeliness


  The information should be available to decision-makers in time so that it is useful for decision-making. Having information on time enables it to be used so as to influence decisions. If information is not provided on time, the information is not as useful.
• Understandability


  Means the accounting information should be presented in a format which can be understood by users with a reasonable knowledge of business and economic activities and they can comprehend their meaning. Information should be presented concisely and clearly.
• Relevance

  Refers to the usefulness of financial information in helping users make decisions. Relevant financial information will assist the users in forming predictions about the outcomes of past, present or future events.
• Faithful Representation 


  Information reported must be a faithful representation of the real-world economic event it represents. Information should be complete, free from material error, accurate and neutral (without bias).
• Comparability 


  Ensures that users can identify similarities and differences in financial reports with other entities or over different reporting periods because of consistent accounting standards and policies.
• Verifiability 


  The premise that financial information is supported by evidence such as the retention of source documents that can be used to check its accuracy. The financial information should allow different independent and knowledgeable observers to reach a consensus that an event has been faithfully represented.
• Period Assumption

  The ongoing life of the business is divided into equal, arbitrary reporting periods e.g. a month, quarter or year in order to compare results, measure performance and prepare reports. Reports should reflect the period in which the transaction occurs. In each reporting period revenue earned is compared with expenses incurred so as to calculate an accurate profit for the reporting period.
• Accrual Assumption

  Under accrual accounting, profit is determined by subtracting the expenses incurred from the revenue earned in the same period.
• Going Concern

  A business will continue to operate and will not be wound up in the foreseeable future and records are kept on this basis.
• Accounting Entity 


  A business has its own financial status and is completely separate from its owner and other entities.