Accounting

• the residual interest the entity after deducting all its liabilities is;

  Equity
• What are the criteria that should be recognized in order to identify elements on accordance with conceptual framework for financial reporting

  1. Elements should be in accordance with the definition
  2. Economic benefit embodying should inflow to the organization
  3. can be measured reliably
• What are the methods of measuring the elements of financial statements ?

  1. Historical cost
  2. Current cost
  3. Realizable cost
  4. Present value
• What is the institute that provide rules to be followed by organizations in preparing financial statements ?

  The institute of charted accountants of Sri Lanka
• Accounting policies are the

  specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.
• Changes in accounting estimates

  it is an adjustment of the carrying amount of an asset or a liability or the amount of the periodic consumption of an asset. That results from the assessment of the present status and expected future benefits and obligations associates with assets and liabilities.
• errors are


  omissions from and mis-statements in the entity periods arising form a failure to user or misuse of reliable information that was available when financial estimates for those periods were authorized for issue

  ex:- Mathematical errors

  Errors in the use of accounting policies

  oversight mis-interpretation and frauds
• There are 2 ways of selecting an accounting policy;

  1. If an accounting standard is clearly applied to a transaction or an event, the accounting policy should adhere to the standards
  2. if not, management shall use to judgment in developing and applying an accounting policy
• An entity shall change the accounting policy only if the change ;

  1. Is required by a standard
  2. required to changes in entity's financial position performance or cash flows to be presented in more reliable and more relevant manner.
• if the changes in accounting eatimates only affects the period in which the change occured,

  then adjust the profit or loss of the period

  ex:- Impairment loss on trade receivables

  Allowance for expected losses on trade receivables
• If the changes in accounting estimates affects both the period in which the changes occurred and the future periods;

  then adjust the profits/ losses of each period affected

  ex :- Changes in depreciation values due to the changes in useful economies

  Life of property, plant and equipment
• If the changes in accounting estimates affects assets, liabilities or equity;

  then adjust the related period assets, liabilities, equity and their fair values
• What are the 3 parts of the inventories ?

  1. Raw materials
  2. work-in-progress
  3. finished goods
• what are the 3 elements of cost of inventories ?

  1. cost of purchase
  2. cost of conversion
  3. other costs incurred in bringing the inventories to their present location and condition
• Net Realizable value =

  Estimated Selling Price - ( Estimated Cost of Completion + Estimated costs necessary to make the sale )
• As per LKAS 02, inventories shall be measured at the lower price between the 


  cost and net-realizable value
• What are the methods of deciding lower of cost or net realizable value

  1. Item by item method
  2. Group method
• What is the main objective of Accounting?

  Communicating of economic information about the entity that will enable interested stakeholders to take decisions based on such information
• What is a Reporting Entity?

  A Reporting Entity is an organization that provides financial reports to users, such as shareholders, investors, or creditors.
• If the reporting entity is a Business, it comes under Business Accounting

  If the reporting entity is a Person, it comes under Personal Accounting

  If the reporting entity is a Government, it comes under Government Accounting

  If the reporting entity is a Public Organization, it comes under Public Accounting.

  If the reporting entity is a Nation, It comes under National Accounting
• What is Accounting?


  Accounting is the Process of providing relevant economic information to the concerned stakeholders to enable them to make appropriate decisions.
• Accounting information can be devided as Financial and Non- financial Information

  Financial Information - The total Assets of the business is Rs.20000

  - Profit of the business during the financial year is

  Rs.200000

  Non-Financial Information - The work force of the organization is 500
• What is Financial Accounting?

  Preparation of information about the past transactions of an entity in a manner that will enable external parties to make economic decisions
• What is management Accounting?

  The provision of relevant information that'll assist and support all levels of management to plan, control, make decisions in order to fulfil their responsibilities.
• Financial Information Process


  below img

  
• Management Accounting Process


  table below

  
• Differences between Financial Accounting and Management Information

  below img

  
• What are the facts that have an impact on business accounting?

  1. Economic and political environment
  2. Technological and professional environment
  3. Legal environment
  4. Social and Cultural environment
  5. Technological environment
• What is an accounting environment?

  The environment that has an influence on the accounting process of a business
• What is the step by step process of Accounting?

  1. Measuring the Transactions and Events of the business in monetary terms
  2. Recording in the books of prime entry from Source documents
  3. Transferring information from the books of prime entry to the ledgers
  4. Balancing the ledger accounts and preparing a Trial Balance
  5. Preparing the financial Statements
• What is '' Business Entity Concept''?

  The Business is independent from its owners or other parties
• What is '' Money Measurement Concept ''?

  Only tha resources that have a monetary value are recorded
• Whatever volume of transactions take place in a business, make clear that only transactions that are measurable in monetary terms are recorded.
• The investment made in the business by its owners is;

  Capital
• If the resources of the business have been invested only by the owner confirm that Assets =


  Equity
• When outside parties has involves in the process of investing on business except for its owners, then the equation Assets = Equity turns into


  Assets = Equity+Liabilities