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Accounting notes

Accounting notes - 1 Characteristics of useful financial...

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Inventories (stock) Cash Trade receivables (debtors) Non-current assets Current assets Capital Non-current liabilities Current liabilities + + + = 1) Characteristics of useful financial info: o Relevance o Reliability o Comparability o Understandability o Materiality o Cost/benefit Accounting info system: o Identification Recording Analysis Reporting 2) 3 types of financial statements: o Cash flow statement What cash movements took place over a period of time o Income statement How much wealth was made/lost over a period o Balance sheet What is the wealth of the business at the end of the period The Balance Sheet: o Assets vs. claims Assets: Probable future benefits exist Exclusive rights of control Benefit from past transaction Measurement in monetary terms Can be tangible or intangible Claims Capital: owner(s)’ claims against the business Liabilities: outsiders’ claims against the business Classification of assets Current assets: Short term, for trading, cash or near cash (short term investments), for sale or consumption in the period Circulating nature of current assets: Non-current assets: “tools” of the business, held for long-term, help generate wealth Classification of claims Current liabilities: settled in the business cycle, held for trading purposes Non-current liabilities: can be settled outside of 12 months o Balance sheet formats: Horizontal: Vertical: NCA+ (CA- CL)- NCL= Capital Accounting conventions o Business entity convention o Money measurement o Historic cost convention 1
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o Going concern convention o Dual aspect convention o Prudence convention o Stable monetary unit convention o Objectivity convention o Asset valuation: Property plant and equipment are shown at historic cost less depreciation (or fair values can also be used) Current assets are shown at the lower of cost or net realizable value 3) The income statement (profit and loss account) o Measures and reports how much profit (wealth) was generated over a period. Revenue is the measure of the inflow of economic benefits from ordinary activities of the business, ex.: sale of goods, fees for services, etc. .. Expense: the outflow of economic benefits from ordinary business activities ex.: cost of buying goods, salaries and wages, rent and rates, etc. .. o Profit (loss) for the period= total revenue for the period- total expenses incurred o Cost of sales: Opening inventories+ goods purchased= goods available for resale Goods available for resale- closing inventories= cost of goods sold o Profit measurement and recognition of revenue Key issue: when is the point at which revenue is recognized At the point to do service, sale At the point of completion of service, delivery At the point of payment Basic criteria that must be met before revenue can be recognized: The amount of revenue can be measured reliably
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Accounting notes - 1 Characteristics of useful financial...

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