Transaction: an exchange between a business and one or more external parties to a business or a
measurable internal event, such as adjustments for the use of assets in operations.
Account: a standardised format that organizations use to accumulate the monetary effects of transactions
on each financial statement item.
Overview of accounting concepts:
Primary objective of external financial reporting: provides useful economic info about a business to help
external parties make sound financial decisions.
- Primary Qualitative Characteristics:
a) Relevance: Timely, predictive and has feedback value
b) Faithful Representation: Accurate, Unbiased and verifiable
- Secondary Qualitative Characteristics:
a) Comparability: across businesses
b) Consistency: Overtime
- Separate entity: business transactions are separate from the transactions of the owners.
- Unit of measure: accounting info should be measured and reported in the national monetary unit.
- Continuity (going concern): businesses are assumed to continue to operate into the foreseeable
future without forced liquidation.
- Periodicity: the long life of a company can be reported in shorter periods.
- Cost principle (historical cost): requires assets to be recorded at the historical cash-equivalent cost,
which is cash paid plus the current monetary value of all non-cash considerations also given in the
- Objectivity: amount used in recording transactions are to be based on objective evidence rather than
- Revenue recognition: revenue is required to be assigned to the accounting period which is earned
- Matching: revenue and expenses are required to be matched
- Full disclosure: events that make a difference to users should be disclosed.
Elements of the classified statement of financial position:
a) Assets: economic resources controlled by an entity as a result of past transactions or events and
from which future economic benefits may be obtained.
Current assets: assets that will be used or turned into cash within one year. Inventory is
always considered to be a current asset, regardless of the time needed to produce and sell it.
Non-current assets: assets that are considered to be long term (>1 year) (i.e property, plant
and equipment, goodwill, intangible as