Relevance in Accounting Principles PDF
Document Details
Uploaded by Deleted User
Tags
Summary
This document outlines key accounting principles, such as relevance, faithful representation, comparability, verifiability, timeliness, understandability, and the period and entity assumptions. It also covers accrual basis, going concern, and defines terms like revenue, current asset, expense, owners equity, and current liability.
Full Transcript
**Relevance:** Information that is capable of making a difference to decisions made by users. **Faithful Representation:**Users must be assured that the information presented is complete, free from error and neutral (without bias) **Comparability:** Enables users to identify and understand similar...
**Relevance:** Information that is capable of making a difference to decisions made by users. **Faithful Representation:**Users must be assured that the information presented is complete, free from error and neutral (without bias) **Comparability:** Enables users to identify and understand similarities in, and differences among items **Verifiability: Ability to ensure that different independent observers can reach a consensus. Maintained by retention of source documents** **Timeliness:** Having information available to decision-makers in time to be capable of influencing their decisions **Understandability:** Information should be comprehensible. It should be presented clearly and concisely **Period Assumption:** Prepared for a particular period of time to obtain comparable results **Entity Assumption:** Records of the owner and the business are kept separate and records and reports for each business are also kept separate **Accrual Basis:** Revenue is recognised in the period where the inflow of economic benefits can be measured in a faithful and verifiable manner. Expenses when consumption can be measured/incurred. Allowing profit to be determined **Going Concern:** Reports are prepared on the assumption that the existing entity will continue into the future **Revenue:** *an increase in assets (Bank), which leads to an increase in owner's equity, other than those relating to contributions from the owner* **Current Asset:** *a present economic resource controlled by the entity (as a result of past events) that is reasonably expected to be converted into cash within the next 12 months (when the cash is received from the Accounts Receivable)* **Expense:** *a decrease in assets (Bank), which leads to a decrease in owner's equity, other than those relating to distributions from the owner* **Owners equity:** *the residual interest in the assets of the entity after the deduction of its liabilities* **Current liability:** *a present obligation of the entity to transfer an economic resource (as a result of past events) that is reasonably expected to be settled within 12 months (when the employees are paid)*
