Accounting Definitions

Question 1

Predictive Value

Answer 1

information is useful in predicting the future

Question 2

Relevance

Answer 2

pertinent to the decision at hand

Question 3

Timeliness

Answer 3

information is available prior to the decision

Question 4

Distribution to owners

Answer 4

decreases in equity resulting from transfers to owners

Question 5

Confirmatory Value

Answer 5

information confirms expectations

Question 6

Understandability

Answer 6

users understand the information in the context of the decision being made

Question 7

Gain

Answer 7

increases in equity from peripheral or incidental transactions of an entity

Question 8

Faithful representation

Answer 8

agreement between a measure and the phenomenon it purports to represent

Question 9

Comprehensive Income

Answer 9

the change in equity from nonowner transactions

Question 10

Materiality

Answer 10

concerns the relative size of an item and its effect on decisions

Question 11

Comparability

Answer 11

important for making interfirm comparisons

Question 12

Neutrality

Answer 12

the absence of bias

Question 13

Recognition

Answer 13

the process of admitting information into financial statements

Question 14

Consistency

Answer 14

applying the same accounting practices over time

Question 15

Cost Effectiveness

Answer 15

requires consideration of the cost and value of information

Question 16

Verifiability

Answer 16

implies consensus among different measures

Question 17

Expense Recognition

Answer 17

record expenses in the period the related revenue is recognized

Question 18

Periodicity Assumption

Answer 18

the life of an enterprise can be divided into artificial time periods

Question 19

Historical Cost Principle

Answer 19

the original transaction value upon acquisition

Question 20

Revenue Recognition

Answer 20

criteria usually satisfied for products at point of sale

Question 21

Going Concern Assumption

Answer 21

the entity will continue indefinitely

Question 22

Monetary Unit Assumption

Answer 22

a common denominator is the dollar

Question 23

Economic Entity Assumption

Answer 23

the enterprise is separate from its owners and other entities

Question 24

Full-Disclosure Principle

Answer 24

all information that could affect decision should be reported

Question 25

Special Journals

Answer 25

record of a repetitive type of transactions (e.g. sales journal)

Question 26

Control Accounts

Answer 26

an account used to record the balances on a number of subsidiary accounts and to provide a cross-check on them.

Question 27

Deferrals or Prepayments

Answer 27

cash flow PRECEDES either expense or revenue recognition

Question 28

Accruals

Answer 28

when cash flow occurs AFTER either expense or revenue recognition

Question 29

Estimates

Answer 29

prediction of future events

Question 30

Reversing Entries

Answer 30

optional entries that remove the effects of some of the adjusting entries….for the sole purpose of simplifying journal entries made during the new period

Question 31

Subsidiary Ledger

Answer 31

record of a group of subsidiary accounts associated with a particular general ledger control account

Question 32

With Cash Basis you (blank) when Assets increase and (blank) when assets decrease

Answer 32

ADD
SUBTRACT

Question 33

With Cash Basis you (blank) when Liabilities increase and (blank) when Liabilities decrease

Answer 33

SUBTRACT
ADD

Question 34

Simple Interest

Answer 34

Initial Investment * i * x/12

Question 35

Compound Interest

Answer 35

you have interest on interest

Question 36

Effective Rate

Answer 36

the actual rate at which money grows per year

Question 37

Valuation of Long-Term Bonds

Answer 37

Ordinary Annuity

Question 38

Valuation of Long-Term Leases

Answer 38

Annuity Due

Question 39

Valuation of Installment Notes

Answer 39

Annuity Due

Question 40

Valuation of Pension Obligations

Answer 40

Ordinary Annuity (deferred annuity)