Term
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Definition
• A business is separate from the owner of the business. The accounting records of a business are separate from the personal financial records of the owner.
• The owner’s contribution to the business is capital in accounting records.
• Sole traders and partnerships are only accounting entities.
• Companies are both legal entities and accounting entities. |
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Term
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Definition
• It’s assumed that once a business has started, it will continue to operate into the foreseeable future.
• This allows assets to be recorded at the historical cost in the balance sheet.
• This assumption is not followed if there’s evidence that the business will close in the near future hence assets are at their current sale values in the balance sheet. |
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Term
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Definition
• The life of a business is divided into intervals of time known as accounting periods.
• A business may have a 12month period for annual profit and Loss and income tax payable on profit earned and shorter periods, e.g., 1-6 months.
• At the end of each period a balance sheet is prepared and a profit and loss statement is prepared. |
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Term
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Definition
| • Before it’s recorded an item must have a monetary value. |
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Term
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Definition
| Accounting standards (AASB’s) are used for the provision of useful information to users to ensure uniformity between accounting reports. |
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Term
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Definition
• Is used to identify the qualities that financial reports should have. Two primary qualities of reports are ‘relevance’ and ‘reliability’
• RELEVANCE- A quality of financial information when it can assist users to make decisions about how they will allocate scarce resources, by helping them to predict future events or confirm past evaluations.
• RELIABILITY- A quality when that information can be relied upon to faithfully represent, without bias or error, the transaction it represents or is expected to represent. |
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Term
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Definition
• Is to define elements of financial statements like assets, revenue, expenses or OE.
• It sets out rules for deciding when an asset, liability etc should be included in a report.
• Asset- A property to which a value can be assigned.
• Liability- Something fro which somebody is responsible e.g. a debtor.
• Revenue-Money that enters a business as a result of a sale of goods and services
• Expenses- That value of a resource which has been used in that period.
• OE- The value of an asset above liabilities relating to it. |
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Term
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Definition
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Term
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Definition
• Sole Trader- Owned by 1 person
• Partnership- Owned by 2 or more people (20 Max)
• Proprietary Company- Min 1 shareholder (50 max) except professional companies (400 max)
• Public Company- Min 1 shareholder (No max), Easy to transfer interests, strict government regulation. |
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