Chapter 2

Question 1

Qualitative Characteristics

Answer 1

1. Understandability
2. Relevance
3. Faithful Representation
4. Comparability
5. Consistency
6. Verifiability
7. Timeliness
8. Materiality

Question 2

Understandability

Answer 2

information should be comprehensible to those who are willing to spend the time to understand it

Question 3

Relevance

Answer 3

information makes a difference in decision making

Question 4

Faithful Representation

Answer 4

Information is complete, neutral, free from error

Question 5

Comparability

Answer 5

allows users to analyze two or more companies and look for similarities or differences, can compare to other companies because similar methods have been supplied

Question 6

Consistency

Answer 6

allows comparison within a company from one accounting period to the next

Question 7

Verifiability

Answer 7

independent parties can agree upon measurment

Question 8

Timeliness

Answer 8

Info is presented in a timely manner while it is still relevant

Question 9

Materiality

Answer 9

the dollar magnitude of a transaction makes a difference in how it is recorded

Question 10

economic entity

Answer 10

business transactions are separate from the personal transactions of the owners

Question 11

Going- Concern

Answer 11

company will continue to operate into the foreseeable future without forced liquidation

Question 12

Monetary Unit

Answer 12

all information will me measured in its monetary currency

Question 13

Time Period Assumption

Answer 13

the long life of a company can be reported over a series of shorter time periods, makes it possible to prepare an income statement for a specific time period

Question 14

Historical Cost Principle (Cost Principle)

Answer 14

assets are recorded at original cost, recorded at the amount we paid

Question 15

Conservatism Principle

Answer 15

never want to overstate assets or revenues or understate liabilities or expenses

Question 16

Rules of debits and credits

Answer 16

debits on the left, credits on the right, for each individual transaction debits = credits

Question 17

Assets

Answer 17

increase an asset with a debit
decrease an asset with a credit

Question 18

Liability

Answer 18

Increase a Liability with a credit
Decrease a liability with a debit

Question 19

Stockholders Equity

Answer 19

increase equity with a credit
decrease equity with a debit

Question 20

Revenue

Answer 20

increase revenue with a credit
decrease revenue with a debit

Question 21

Expense

Answer 21

increase an expense with a debit
decrease an expense with a credit

Question 22

Ending balance

Answer 22

end balance = total debits - total credits or total credits - total debits

Question 23

DEAD

Answer 23

Debits increase Expenses, Assets, and Dividends

Question 24

CLEAR

Answer 24

Credits increase Liabilities, Equity, And Revenue