Basic Accy questions

It is concerned with analysing and communicating financial information

A resource controlled by the entity as a result of past events and from which future economic benefit are expected to flow to the entity

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity (economic benefits)

The residual interest in the asset of the entity after deducting all its liabilities.

Assets - Liabilities = Owners Equity

Share Capital and Retained Earnings

Represents the initial investment in the company

Represents profits left in the business by owners (plus net profit from Income statement).

Out flows of economic benefits from the normal course of the business

Inflows of economic benefits from the normal course of the business

• 1. Business/ Accounting convention
• 2. Going concern convention
• 3. Accounting period convention
• 4. Dual aspect convention (double entry accounting)
• 5. Accrual Accounting

• Holds that for accounting purposes, the business and its owner(s) are treated as
• separate and distinct.

Holds that the business is continuing indefinitely

Valuation of assets and liabilities based on business continuing normal course

Holds that the life of the business is divided into given periods of time (usuallyone year) for the purpose of collecting financial information.

Need to make judgment about when transaction occurred

• Holds that each transaction has two aspects and that each aspect must be recorded in
• the financial statements.

Seen in the accounting equation …

accounting recognises income/expenses on the basis that it has been earned/incurred irrespective of whether the cash receipt is in arrears or in advance.

• 1. Relevance
• 2. Reliability 
• 3.Understandibility