Accounting - The Conceptual Framework

Question	Answer
The Accrual Basis of Accounting	Revenues are recognised when they are earned and not (necessarily) when they are received. Simple terms: Income is recorded regardless of whether cash is received or not.
Define an asset (3 points, 2 recognition criteria)	1. A resource that is controlled by the entity 2. Past event 3. Inflow of future economic benefits 1. The cost can be reliably measured 2. Probable inflow of economic benefits
Define a liability (3 points, 2 reconigition criteria)	1. Present obligation of the entity 2. Past event 3. Outflow of resources 1. Cost of the obligation can be measured reliably 2. Probable outflow of economic benefits
Define Owner's Equity	Income minus expenses (Informal recognition criteria: If it's not an asset, a liability, an income or an expense; it's most likely owner's equity)
Define an income	1. An increase in future economic benefits due to an increase in assets OR a reduction in liabilities. 2. The amount of income must be reliably measured.
Define an expense	1. A decrease in future economic benefits due to a reduction in assets OR an increase in liabilities. 2. The amount of expense must be reliably measured

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	Created by BryanTurner almost 10 years ago