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Accounting /POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 2

POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 2

Accounting24 CardsCreated 2 months ago

This deck covers key accounting principles and theories, including professional ethics, accounting assumptions, and the significance of various accounting concepts.

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To ensure professional ethic, you must have what 2 important principles?

Integrity, as you must be straightforward and honest in recording and reporting all information. Objectivity, as you must unbiased and rely only on facts instead of being influenced by gains or interests of other parties.
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Key Terms

Term
Definition
To ensure professional ethic, you must have what 2 important principles?
Integrity, as you must be straightforward and honest in recording and reporting all information. Objectivity, as you must unbiased and rely only on fa...
What are the 11 key accounting theories?
Accounting entity, Going concern, Accounting period, Monetary assumption of money measurement, Historical cost, Objectivity, Materiality, Accural, Mat...
What is the significance of accounting entity?
The business and its owners are treated as separate and different entities.
What is the significance of Going concern?
Business is assumed to operate for an indefinite period of time.
What is the significance of Accounting period?
Life span of business divided into fixed periods of time.
What is the significance of Monetary assumption?
Only transactions that can be measured in monetary terms are included in the accounting records.
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POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 2
TermDefinition
To ensure professional ethic, you must have what 2 important principles?
Integrity, as you must be straightforward and honest in recording and reporting all information. Objectivity, as you must unbiased and rely only on facts instead of being influenced by gains or interests of other parties.
What are the 11 key accounting theories?
Accounting entity, Going concern, Accounting period, Monetary assumption of money measurement, Historical cost, Objectivity, Materiality, Accural, Matching, Consistency, Prudence or conservatism.
What is the significance of accounting entity?
The business and its owners are treated as separate and different entities.
What is the significance of Going concern?
Business is assumed to operate for an indefinite period of time.
What is the significance of Accounting period?
Life span of business divided into fixed periods of time.
What is the significance of Monetary assumption?
Only transactions that can be measured in monetary terms are included in the accounting records.
What is the significance of Historical cost?
Transactions are recorded at the original cost to the business.
What is the significance of Objectivity?
Transactions are based on verifiable evidence.
What is the significance of Materiality?
Amount which is immaterial is treated as an expense.
What is the significance of Accural?
Income recognised when earned, not received; expenses recognised when incurred, not paid. Accural Basis: Profit = Revenue earned - Expenses incurred. Cash Basis: Profit = Revenue received - Expenses paid.
What is the significance of Matching?
Expenses incurred are matched against income earned during the same period to determine profit.
What is the significance of Consistency?
The same accounting method should be applied to an item for all the accounting periods.
What is the significance of Prudence?
When reporting an item, select the option which gives a lower profit or asset value. Loss is usually recognised but not gain.
Identify the accounting theory: The assets of a business are expected to be used in the business and not to be sold in the near future.
Going concern.
Identify the accounting theory: Every business transaction must have supporting documents before they can be recorded in the books.
Objectivity.
Identify the accounting theory: Skills and good performance of the staff cannot be recorded in the accounting books.
Monetary assumption.
Identify the accounting theory: When figures cannot be accurately determined, the method that will report a lower profit will be used.
Prudence.
Identify the accounting theory: When preparing the accounts of a firm, one should normally use the same accounting methods for similar items from one accounting period to the next.
Consistency.
Identify the accounting theory: Profit is the difference between income earned and expense incurred during the same period.
Matching.
State the accounting theory and whether it is followed or violated: The owner of a business used a business cheque to pay for a sofa for his home.
Accounting theory - violated.
State the accounting theory and whether it is followed or violated: In preparing financial reports, the life of the business is divided into specific periods of time.
Accounting period - followed.
State the accounting theory and whether it is followed or violated: Market values rather than historical costs are used to record non-current assets in accounts.
Historical cost - violated.
State the accounting theory and whether it is followed or violated: A company records all income received in cash without considering if they belong to the relevant accounting period.
Accural - violated.
State the accounting theory and whether it is followed or violated: The accountant feels that the money spent on computer software is not significant enough to be considered as a non-current asset.
Materiality - followed.