VCE Accounting Unit 3 Exam Revision
Financial reports are prepared on the assumption that the existing entity will continue to
operate into the future and records are kept on this basis. Balance sheets are prepared
on the basis of there being future economic benefits or obligations. - answer Going
Concern Assumption
The records of the entity are to be kept completely separate from those of the owner of
the entity as well as from those of other entities. A separate set of accounting records is
maintained for each entity, and the financial statements prepared provide information on
that entity only. - answer Accounting Entity Assumption
Revenue is recognized when earned and expenses are recognized when incurred
regardless of whether cash has been received or paid. They are recognized in the
period in which the inflow or consumption can be measured in a faithful and verifiable
manner. - answer Accrual Basis Assumption
Reports are prepared for a particular period of time such as a month or year, in order to
obtain comparability of results. Profit is determined by deducting expenses incurred
from revenues earned for that period so that an accurate profit or loss can be
determined for the period. - answer Period Assumption
Relevance states that information in reports must be capable of making a difference to
the decisions made by users of the report. Include all information which is useful for
decision-making and exclude information which is not. - answerRelevance
The information reported must be a faithful representation of the real-world economic
event it represents. Information must be complete, free from material error and without
bias - answerFaithful Representation
Verifiability means that knowledge and independent observers can reach a consensus
that a particular depiction of an event is faithfully represented. Verifiability is achieved by
basing reports on verifiable evidence such as source documents. - answerVerifiability
Comparability states that reports should be able to be compared period to period and
business to business. - answerComparability
Timeliness means having information available to decision-makers in time to be capable
of influencing their decisions - answerTimeliness
Understandability requires that financial information be comprehensible to users with
reasonable knowledge of business activities. Information should be presented clearly
and concisely in reports - answerUnderstandability
Financial reports are prepared on the assumption that the existing entity will continue to
operate into the future and records are kept on this basis. Balance sheets are prepared
on the basis of there being future economic benefits or obligations. - answer Going
Concern Assumption
The records of the entity are to be kept completely separate from those of the owner of
the entity as well as from those of other entities. A separate set of accounting records is
maintained for each entity, and the financial statements prepared provide information on
that entity only. - answer Accounting Entity Assumption
Revenue is recognized when earned and expenses are recognized when incurred
regardless of whether cash has been received or paid. They are recognized in the
period in which the inflow or consumption can be measured in a faithful and verifiable
manner. - answer Accrual Basis Assumption
Reports are prepared for a particular period of time such as a month or year, in order to
obtain comparability of results. Profit is determined by deducting expenses incurred
from revenues earned for that period so that an accurate profit or loss can be
determined for the period. - answer Period Assumption
Relevance states that information in reports must be capable of making a difference to
the decisions made by users of the report. Include all information which is useful for
decision-making and exclude information which is not. - answerRelevance
The information reported must be a faithful representation of the real-world economic
event it represents. Information must be complete, free from material error and without
bias - answerFaithful Representation
Verifiability means that knowledge and independent observers can reach a consensus
that a particular depiction of an event is faithfully represented. Verifiability is achieved by
basing reports on verifiable evidence such as source documents. - answerVerifiability
Comparability states that reports should be able to be compared period to period and
business to business. - answerComparability
Timeliness means having information available to decision-makers in time to be capable
of influencing their decisions - answerTimeliness
Understandability requires that financial information be comprehensible to users with
reasonable knowledge of business activities. Information should be presented clearly
and concisely in reports - answerUnderstandability
