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ACF-1100-Week-1 - Coggle Diagram

- - - - the conceptual framework can be considered the "general principles of financial reporting".
      - think of it as the underlying set of concepts and theory that underpins accounting.
      - the conceptual framework is used as the basis for developing specific accounting rules and regulations
      - It is a set of concepts which define the NATURE, SUBJECT and CONTENT of accounting"
      - Two components- 1. SAC- definition of a "reporting entity" 2. The AASB Framework-a. the objective of general purpose financial reporting b. the qualitative characteristic of information c. the assumptions underlying financial reports d. the five elements of accounting and the criteria for their recognition
        
        1.a) definition of the reporting entity- 1. defines a "reporting entity" as any entity in which it is reasonable to expect the existence of users who depend on general-purpose financial reports for information for making and evaluating resource allocation decisions 2. If an entity meets this definition, it must prepare financial reports
        
        The AASB Framework
        
        2a. assumptions underlying financial reports 2b. obejective of financial reports(appendix chapter 1) 2c. qualitative characteristic of financial reports 2d. elements of financial reports and their recognition criteria.
        
        2a. assumptions underlying financial reports- 1.going concern, entity assumed to continue indefinitely 2. Accrual basis- records transactions when they occur rather than only when cash is received/paid.
        
        2b.Obejctive of general purpose financial reporting: To provide financial information about the reporting entity that is useful to existing and potential equity investors,lenders and other creditors in making their decisions about providing resources to the entity.
        
        2c. qualitative characteristics are the attributes that make the information provided in financial statements USEFUL to users.The fundamental characteristics-1 relevance(-materiality) 2.faithful representation(reliability) . The enhancing characteristics- 1.comparability 2.verifiability 3.timeliness 4.understandability. 以上几个特点的确保使得财务报表有用
        
        Relevance:If it influences users'economic decisions through feedback or confirmatory value and comparability.是属于fundamental characteristics
        
        Faithful representation（准确性）: complete, neutral and free from error--属于fundamental characteristics
        
        Materiality:does its omission or misstatement affect decision making
        
        Understandability: readily understandable by users assumed to have reasonable business knowledge
        
        Comparability: must be able to compare financial statement over time and between entities
        
        Verifiability（可验证性）: different knowledgeable and independent observers can reach consensus
        
        2d. elements of financial statements: 1.assets 2.liabilities 3. owner's equity 4. income 5.expense
        
        1. Assets-definition: " a resource controlled by the entity as a result of a past event and from which future economic benefits are expected to flow to the entity
        
        Essential characteristics: 1. future economic benefits 2. control by the entity 3. past event
        
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        Recognition criteria for assets
        
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        Import terms
        
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        assets can be categorised into current and non-current assets
        
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        2.Liabilities-definition: "a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
        
        Essential characteristics: 1. Future outflow of resources 2. present obligation 3. result of past event
        
        the essential components of the recognition criteria are: (1) probable future outflow of economic benefits----more likely than not ----greater than 50% chance of occurring. (2) reliable measurement-----transaction to verify the cost -----reasonable estimate是否可以估算其价值
        
        Current liabilities: obligations that are due to be paid within one year(e.g, creditors, bank overdraft, 6-month bank loan) 2. Non-current liabilities-obligations that are due for repayment after one year.
        
        3.Owners Equity-definition:Equity cannot be defined separately and is "the residual interest in the assets of the entity after deducting all its liabilities.
        
        EQUATION: owner's equity = assets - liabilities
        
        4.income(revenue,gains)=''...increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities that result in increases in equity, other than those relating to contributions from equity participants"
        
        Essential characteritics: 1. An inflow of economic benefits(increase in assets or decrease in liabilities ) 2. result in an increase in equity, but 3. Excludes owner's contributions of equity.
        
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        recognition criteria for income- the essential components of the recognition criteria are:(1) probable future inflows--more likely than not----greater than 50% chance of occurring. (2) reliable measurement---transction to verify the cost---- reasonable estimate
        
        5.expenses-definition:''decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity,other than those relating to distribution to equity participants"
        
        Essential characteristics: 1.An outflow of economic benefits(decrease in asset or increase in liability) 2.result in a decrease in equity, but 3.excludes distributions to owners
        
        (1)outflows(decrease in assets or increase in liabilities) (2) resultant decrease in equity (3) other than distributions to equity participants
        
        如果一个Item都符合definition和recognition，记录在财务报表上；如果一个Item只符合definition但不符合recognition，以notes的形式附在财务报表上
- - - - The external users have interest in financial information about the three main activities: 1.financing activities 2. investing activities 3. operating activities.
- - - - A sole proprietor has complete control and decision-making power over the business.
      - Sale or transfer can take place at the discretion of the sole proprietor.
      - No corporate tax payments
      - Minimal legal costs to forming a sole proprietorship
      - Few formal business requirements
    - - The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
      - All responsibilities and business decisions fall on the shoulders of the sole proprietor.
      - Investors won't usually invest in sole proprietorships.