ACC 300 Chapter 2

Question 1

Comparability

Answer 1

Qualitative characteristics being employed when companies in the same industry are using the same accounting principals. Imperative for providing comparisions of a company from period to period

Question 2

Confirmatory value

Answer 2

Quality of information that confirms users earlier expectations

Question 3

Neutrality

Answer 3

Ignores the economic consequences of a standard or rule

Question 4

Verifiability

Answer 4

Requires a high degree of consesus among individuals on a given measurment

Question 5

Relevance

Answer 5

Predicitive value. Accounting info must be capable of makig a difference in a decison

Question 6

Four qualitative characteristics that are related to both relevance and faithful representation

Answer 6

Comparability, verifiability, timeliness, and understandability

Question 7

Materiality

Answer 7

An item is not recorded because its effect on income would not change a decision

Question 8

Faithful representation

Answer 8

Neutrality. The numbers and descriptions match what really happened

Question 9

Two fundamental qualities that make accounting information useful for decision making purposes

Answer 9

Relevance and faithful representation

Question 10

Timeliness

Answer 10

Having info available to desision makers before it loses its capacity to influence decisons

Question 11

Expense recognition principle

Answer 11

Allocates expenses to revenues in the proper period

Question 12

Measurement (historical cost principle)

Answer 12

Indicates that fair value changes subsequent to purchase are not recorded in the accounts

Question 13

Full disclosure principle

Answer 13

Ensures that all relevant financial info is reported

Question 14

Going concern assumption

Answer 14

Rationale why plant assets are not reported at liqudation value

Question 15

Economic entity assumption

Answer 15

Indicates that personal and business record keeping should be separately maintained

Question 16

Periodicity assumption

Answer 16

Separates finacial information into definded time periods for reporting purposes

Question 17

Monetary unit assumption

Answer 17

Assumes that the dollar is the “measuring stick” used to report on financial performance

Question 18

Measurment principle fair value

Answer 18

Agricultural companies use fair value for purposes of valuing crops. An allowance for doubtful accounts is established

Question 19

Revenue recognition principle

Answer 19

Revenue is recorded when the product is delivered. Rationale for accrual accounting

Question 20

First level

Answer 20

Objective of financial reporting. The “why” purpose of accounting

Question 21

Second level

Answer 21

Qualitative characteristics of accounting information and elements of financial statements. Bridge between levels 1 and 2

Question 22

Third level

Answer 22

Recognition, measurment, and disclosure concepts. Assumptions, principles, and constraints. The “how” implementation

Question 23

Similarities for GAAP and IFRS

Answer 23

Objective financial reporting, common set of desired qualitative characteristics, organized in a similar manner, converged framework should be a single document, similar meaurment principals based on historical and fair value

Question 24

Differences between GAAP and IFRS

Answer 24

Ifrs used fair value more, gaap has a concept to guide estimation of fair value, monetary unit assumption is based on country it is incorporated in, economic enitity assumption in different cultures results in different application