Unit 3.4 Chp 1-4

10 UNIT 3 FINANCIAL ACCOUNTING FOR A TRADING BUSINESS
Review questions 1.3
1 List the four stages in the Accounting process.
2 Explain the role of source documents in the Accounting process.
3 Identify the type of transaction evidenced by the following source documents:
• receipt
• cheque butt
• invoice
• memo.
4 Explain the difference between the ‘recording’ and ‘reporting’ stages of the
Accounting process.
5 State the purpose of each of the following Accounting reports:
• Cash Flow Statement
• Income Statement
• Balance Sheet.
1.4 Accounting assumptions
By and large, accountants approach their craft from a common perspective. For instance,
all would agree that a motor vehicle purchased by the business in 2018 for $24 000
should be regarded as an asset of that business.
Accounting Standard
a technical pronouncement
that sets out the required
Accounting for particular types
of transactions and events for
businesses reporting under
company law
Study tip
Accounting Standards
underpin many of the
techniques used in this
text, but students are
not required to know
the relevant Accounting
Standard.
Conceptual Framework
a statement of generally
accepted theoretical principles
that form the frame of reference
for financial reporting
This shared understanding of ‘how Accounting should be done’ rests on a mixture of
generally agreed theoretical principles, specific definitions, rules and procedures (many
reflected in Accounting Standards), and even particular laws.
In recent times, the International Accounting Standards Board (IASB) has attempted
to ‘codify’ these agreed principles and ideas in its ‘Conceptual Framework for Financial
Reporting’. The Conceptual Framework, as it has become known, brings together the
broad concepts that underpin the preparation of financial reports including:
• a number of Accounting assumptions that underpin the preparation of financial
reports
• the Qualitative characteristics of the information in the reports (see Section 1.5)
• the definitions of the Elements of the reports themselves (see Section 1.6).
Taken together, the Accounting assumptions, Qualitative characteristics and
definitions of the Elements of the reports help accountants to make decisions about
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