VCE Accounting Unit 1&2 - All terms
Accounting - answer the collection, recording and reporting of financial information to
assist business owners in decision-making
Financial data - answer raw facts and figures upon which financial information is based
Where is financial data gathered from? - answer Source documents
Financial information - answer financial data which has been sorted, classified and
summarized into a more usable and understandable form
How is financial information presented? - answer Accounting reports
Non-financial information - answer any information that cannot be found in the financial
statements, and is not expressed in dollars and cents, or reliant on dollars and cents for
its calculation
State the Accounting Equation. (use full words in your answer) - answer Assets =
Liabilities + Owner's Equity.
Assets - answerpresent economic resource controlled by the entity (as a result of past
events) that has the potential to generate future economic benefits
Current Assets - answerpresent economic resource controlled by the entity (as a result
of a past event) that is expected to be sold, consumed or converted into cash within 12
months after the end of the reporting period
Non-current Assets - answerpresent economic resource controlled by the entity (as a
result of a past event) that is expected to be used by the business for a number of years
and is not held for the purpose of resale
Liabilities - answerpresent obligation of the entity (as a result of past events) that, when
settled, is reasonably expected to end in a transfer of an economic resource from the
entity
Current Liabilities - answerpresent obligations of the entity (arising from past events)
that are reasonably expected to be settled in the next 12 months after the end of the
reporting period
Non-current Liabilities - answerobligations of the entity (arising from past events) that
are not expected to be settled in the next 12 months after the end of the reporting period
, Owner's Equity - answerresidual interest in the assets of the business after liabilities
have been deducted
What is the equation to calculate Owner's Equity? - answerOwner's equity = Assets -
Liabilities
Revenues - answerincrease in assets or decrease in liabilities that leads to an increase
in owner's equity (excluding Capital contribution)
Expenses - answera decrease in assets or increase in liabilities that leads to a decrease
in owner's equity
Going Concern Assumption - answerthe assumption that the business will continue to
operate in the future, and its records are kept on that basis
Entity Assumption - answerrecords of assets, liabilities and business activities of the
entity are kept separate from that of the owner as well as from those of other entities
Accrual Basis Assumption - answerElements of the reports are recognised when they
satisfy the definitions and recognition criteria, meaning profit is calculated as revenue
earned in a particular period less expenses incurred in that same period
Period Assumption - answerReports are prepared for a set period of time in order to
obtain comparability of results
According to the Accrual Basis Assumption, revenue/expenses are recognised when? -
answerAt the time of transaction, rather than when cash is received or paid
Relevance - answerfinancial information that is capable of making a difference to the
decision made by users of the report
Faithful Representation - answerfinancial information reported is a faithful
representation of the real world economic event that it claims to represent: complete,
free from material error and neutral
Comparability - answeruseful information is provided when the financial reports of a
business can be compared over time and with similar information of other businesses
Verifiability - answerensures that different, knowledgeable and independent observers
can reach the same conclusion that a particular representation of an event is faithfully
represented
Timeliness - answerfinancial information should be available to decision makers in time
to be capable of influencing their decisions
Accounting - answer the collection, recording and reporting of financial information to
assist business owners in decision-making
Financial data - answer raw facts and figures upon which financial information is based
Where is financial data gathered from? - answer Source documents
Financial information - answer financial data which has been sorted, classified and
summarized into a more usable and understandable form
How is financial information presented? - answer Accounting reports
Non-financial information - answer any information that cannot be found in the financial
statements, and is not expressed in dollars and cents, or reliant on dollars and cents for
its calculation
State the Accounting Equation. (use full words in your answer) - answer Assets =
Liabilities + Owner's Equity.
Assets - answerpresent economic resource controlled by the entity (as a result of past
events) that has the potential to generate future economic benefits
Current Assets - answerpresent economic resource controlled by the entity (as a result
of a past event) that is expected to be sold, consumed or converted into cash within 12
months after the end of the reporting period
Non-current Assets - answerpresent economic resource controlled by the entity (as a
result of a past event) that is expected to be used by the business for a number of years
and is not held for the purpose of resale
Liabilities - answerpresent obligation of the entity (as a result of past events) that, when
settled, is reasonably expected to end in a transfer of an economic resource from the
entity
Current Liabilities - answerpresent obligations of the entity (arising from past events)
that are reasonably expected to be settled in the next 12 months after the end of the
reporting period
Non-current Liabilities - answerobligations of the entity (arising from past events) that
are not expected to be settled in the next 12 months after the end of the reporting period
, Owner's Equity - answerresidual interest in the assets of the business after liabilities
have been deducted
What is the equation to calculate Owner's Equity? - answerOwner's equity = Assets -
Liabilities
Revenues - answerincrease in assets or decrease in liabilities that leads to an increase
in owner's equity (excluding Capital contribution)
Expenses - answera decrease in assets or increase in liabilities that leads to a decrease
in owner's equity
Going Concern Assumption - answerthe assumption that the business will continue to
operate in the future, and its records are kept on that basis
Entity Assumption - answerrecords of assets, liabilities and business activities of the
entity are kept separate from that of the owner as well as from those of other entities
Accrual Basis Assumption - answerElements of the reports are recognised when they
satisfy the definitions and recognition criteria, meaning profit is calculated as revenue
earned in a particular period less expenses incurred in that same period
Period Assumption - answerReports are prepared for a set period of time in order to
obtain comparability of results
According to the Accrual Basis Assumption, revenue/expenses are recognised when? -
answerAt the time of transaction, rather than when cash is received or paid
Relevance - answerfinancial information that is capable of making a difference to the
decision made by users of the report
Faithful Representation - answerfinancial information reported is a faithful
representation of the real world economic event that it claims to represent: complete,
free from material error and neutral
Comparability - answeruseful information is provided when the financial reports of a
business can be compared over time and with similar information of other businesses
Verifiability - answerensures that different, knowledgeable and independent observers
can reach the same conclusion that a particular representation of an event is faithfully
represented
Timeliness - answerfinancial information should be available to decision makers in time
to be capable of influencing their decisions
