Free SACE Accounting Flashcard Review

Transactions are recorded when earned or incurred, regardless of when cash is received or paid. This ensures the income statement reflects true performance for the period.

The business is treated as a separate entity from its owner(s) for accounting purposes, ensuring financial records reflect the business alone, not the owner's personal finances.

Financial reports are prepared at regular intervals (usually 12 months), allowing comparison over time despite the business being a continuous operation.

Financial reports assume the business will continue operating indefinitely unless there is evidence to the contrary, justifying the valuation of assets on a cost basis rather than liquidation basis.

Transactions are recorded in a single currency, permitting aggregation and comparison of different items on financial statements.

Accounting methods and policies are applied consistently from period to period so that financial information is comparable and not distorted by changes in method.

Every transaction affects two accounts: one is debited and one is credited. This maintains the accounting equation: Assets = Liabilities + Equity.

Assets are recorded at the amount paid to acquire them, providing an objective, verifiable measure rather than relying on subjective current values.

When there is uncertainty, estimates are biased towards not overstating assets or income, ensuring financial statements do not mislead users.

Revenue is recognised when earned (goods delivered or services rendered), not necessarily when cash is received.

Items are treated as material if their omission or misstatement would influence a user's economic decisions; immaterial items need not be individually disclosed or adjusted.

Information is relevant when it helps users make economic decisions by supporting them in evaluating past, present, or future events.

Financial information should be complete, neutral and free from error, presenting a true picture of the entity's financial position and performance.

A business owned and operated by one person who has unlimited personal liability for the business's debts.

A business owned by two or more persons; each partner has unlimited personal liability unless the partnership is incorporated as a limited partnership.

The accounting entity is the business whose performance is reported (may include multiple legal entities or only part of a legal entity); the legal entity is the business structure recognised by law (sole trader, partnership, company).

Assets = Liabilities + Equity (or A = L + E).

It reflects duality: every transaction has a debit and credit of equal value, ensuring both sides remain equal.

A record of a transaction in the format: date, account debited, amount, account credited, amount, and brief description.

Assets increase (debit) and decrease (credit) because assets are on the left of the equation and debit is left.