applied accountancy definitions

• Asset


  A present economic resource controlled by an entity as a result of past events
• Liability


  A present obligation of the entity to transfer economic resources as a result of past events
• Relevance


  One of the two fundamental qualitative characteristics of financial reporting. Information is relevant if its omission or misstatement will make a difference to decisions made by users of the financial statements
• Control


  An entity controls an economic resource if it has the present ability to direct the use of the economic resource so as to obtain the economic benefits that may flow from it
• Equity


  The residual interests in the assets of an entity after deducting all the liabilities
• Materiality (qualitative)


  Information is material if omitting or misstating it could reasonably be expected to influence decisions that the users of financial reports make on the basis of those reports. Qualitative materiality occurs when the error or misstatement has been made intentionally by someone in a fiduciary role relative to the reporting entity
• Materiality (quantitative)


  Information is material if omitting or misstating it could reasonably be expected to influence decisions that the users of financial reports make on the basis of those reports. An error or misstatement is quantitatively material if the size of the error or omission is significant relative to the size of the reporting entity
• Going concern assumption


  Financial statements are prepared on the assumption that the reporting entity will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to enter liquidation or to cease trading
• Faithful representation


  The financial statements should represent the substance of the transactions and items that it claims to represent as accurately as possible. To be a perfectly faithful representation the financial statements would need to be complete, neutral and free from error
• Timeliness


  The need for the financial statements to be prepared as soon as possible after the financial year-end of the entity. Generally, the closer the financial statements are published after year-end, the better
• Asset


  A present economic resource controlled by an entity as a result of past events
• Liability


  A present obligation of the entity to transfer economic resources as a result of past events
• Relevance


  One of the two fundamental qualitative characteristics of financial reporting. Information is relevant if its omission or misstatement will make a difference to decisions made by users of the financial statements
• Control


  An entity controls an economic resource if it has the present ability to direct the use of the economic resource so as to obtain the economic benefits that may flow from it
• Equity


  The residual interests in the assets of an entity after deducting all the liabilities
• Materiality (qualitative)


  When the error or misstatement has been made intentionally by someone in a fiduciary role relative to the reporting entity
• Materiality (quantitative)


  The error or omission is significant relative to the size of the reporting entity
• Going concern assumption


  Financial statements are prepared on the assumption that the reporting entity will continue in operation for the foreseeable future
• Faithful representation


  The financial statements should represent the substance of the transactions and items that it claims to represent as accurately as possible. To be a perfectly faithful representation the financial statements would need to be complete, neutral and free from error
• Timeliness


  The need for the financial statements to be prepared as soon as possible after the financial year-end of the entity
• Inventory systems


  • Perpetual Inventory System (e.g. Smart Motors)
  • Periodic Inventory System (e.g. Xavier Dealers)