relearn + definitions

• what is accounting

  • a record keeping mechanism
  • aids in providing information throughout the life of a firm
  • aids decision making (financial + non-financial info)

  4 steps of accounting

  1. identifying ... transactions
  2. measuring ... in monetary terms
  3. recording ... into the accounting system
  4. communicating .... to users
• management vs financial accounting

  • management used for internal DM
  • financial used for external DM

  A) present and future

  B) past

  C) management

  D) financial

  
• users

  A) position of power

  B) without power

  C) managers

  D) needs

  E) other

  F) provide resources

  
• the conceptual framework

  • Includes the general principles of financial reporting
  • Sets out concepts that preparers of financial statements follow.
  • Provides a basis for the development of Accounting Standards
  • it describes the objective of, and the concepts for, general purpose financial reporting

  
• Assumptions, concepts and principles

  • Monetary principle: items to be shown in monetary terms
  • Accounting entity concept: firm and owner are separate
  • Accounting period concept: life of firm separated into periods
  • Going concern assumption: reports prepared on basis firm will continue to operate (unless intends to stop operating)
  • Historical cost principle: eg. inv to be recorded at cost price not selling price
  • Full disclosure principle: all relevant information capable of impacting DM is reported
• QC's

  A) useful

  B) materiality

  C) decision-usefulness

  D) loses value

  E) enhancing

  
• assets

  1. present economic resource
  2. result of past events (eg to receive cash)
  3. potential to produce economic benefits
• liabilities

  • Present obligation
  • Transfer of an economic resource (eg cash settlement)
  • result of past events
• equity

  • the residual interest in the assets of the entity after deducting all its liabilities
• recognition criteria

  • the item must also provide users with useful information

  1. relevant - probability of inflow/outflow is high
  2. faithfully represented - uncertainty estimating a value (want low)