acct 11 - chapter 11

Question 1

ACCRUAL BASIS OF ACCOUNTING

Answer 1

The method of accounting where revenues are recorded in the period when the transaction occurs and not when the cash is received or paid.

Question 2

COMPLETE

Answer 2

The characteristic of financial information when it provides all information necessary to show the economic reality of the transactions. Completeness is part of the faithful representation fundamental qualitative characteristic of financial information.

Question 3

CONCEPTUAL FRAMEWORK OF ACCOUNTING

Answer 3

A coherent system of interrelated elements that guides the development and application of accounting principles: it includes the objective of financial reporting, elements of financial statements, qualitative characteristics of financial information, recognition and measurement criteria, and foundational concepts, assumptions, and constraints.

Question 4

CONSISTENCY

Answer 4

The use of the same accounting policies from year to year. Consistency is part of the comparability enhancing qualitative characteristic of financial information.

Question 5

CURRENT COST

Answer 5

A measurement method that measures an asset at the amount of cash or equivalent that would have to be paid if the same or an equivalent asset had to be purchased in the current period. This is sometimes referred to as “replacement cost.” Liabilities measured at current cost reflect the amount required to settle an obligation currently.

Question 6

COST CONSTRAINT

Answer 6

The constraint that the costs of obtaining and providing information should not be more than the benefits that are gained.

Question 7

EXPENSE RECOGNITION CRITERIA

Answer 7

The criteria that state that expenses should be recognized when there is a decrease in an asset or increase in a liability, excluding transactions with owners that result in a decrease in owners’ equity.

Question 8

FAITHFUL REPRESENTATION

Answer 8

A fundamental qualitative characteristic of financial information that shows the economic reality of a transaction and not just its legal form.

Question 9

FULL DISCLOSURE

Answer 9

The accounting concept that recognizes that financial statement information must be complete and requires the disclosure of circumstances and events that make a difference to financial statement users.

Question 10

GOING CONCERN ASSUMPTION

Answer 10

The assumption that the company will continue operating for the foreseeable future; that is, long enough to meet its current objectives and carry out its current commitments.

Question 11

HISTORICAL COST

Answer 11

An accounting concept that states that assets should be recorded at their historical (original) cost.

Question 12

MATERIAL ERROR

Answer 12

An error in the financial information that could impact an investor’s or creditor’s decision.

Question 13

MATERIALITY

Answer 13

An important component of relevance in which an item is considered material if it is likely to influence the decision of a reasonably careful investor or creditor.

Question 14

NEUTRAL

Answer 14

The characteristic of financial information when it is free from bias that is intended to attain a predetermined result or to encourage a particular behaviour. Neutrality is part of the faithful representation fundamental qualitative characteristic of financial information.

Question 15

OBJECTIVE OF FINANCIAL REPORTING

Answer 15

The goal of providing useful information for investors and creditors in making decisions in their capacity as capital providers.

Question 16

PERFORMANCE OBLIGATION

Answer 16

In a contract with a customer, this is an obligation to provide goods or services to another party.

Question 17

PRESENT VALUE

Answer 17

A measurement method that measures assets and liabilities at the present value of future cash inflows or outflows.

Question 18

PRUDENCE

Answer 18

Guidance expected to be included in the revised conceptual framework to exercise caution in situations of uncertainty. Prudence is closely related to neutrality.

Question 19

REALIZABLE VALUE

Answer 19

A measurement method that measures assets at the amount of cash or equivalent that could currently be obtained by selling the asset in an orderly disposal. Liabilities measured at realizable value report the cash expected to be paid to satisfy the liabilities in the normal course of business. Realizable value also encompasses fair value.

Question 20

RELEVANCE

Answer 20

A fundamental qualitative characteristic that financial information has if it makes a difference in a decision. The information should have predictive and feedback values and be material.

Question 21

REPORTING ENTITY CONCEPT

Answer 21

This foundation concept requires that the accounting for a reporting entity’s activities be kept separate and distinct from the accounting for the activities of its owner and all other reporting entities.

Question 22

REVENUE RECOGNITION CRITERIA

Answer 22

The criteria that state that revenue should be recognized when there is an increase in assets or decrease in liabilities from profit-generating activities.

Question 23

STAND-ALONE SELLING PRICE

Answer 23

The fair value of what a good or service would sell for on its own.

Question 24

STEWARDSHIP

Answer 24

The ability of management to acquire and use a company’s resources in the best possible way.

Question 25

TIMELINESS

Answer 25

An enhancing qualitative characteristic that financial information has if it is provided when it is still highly useful to decision makers.

Question 26

VERIFIABILITY

Answer 26

An enhancing qualitative characteristic of financial information that assures users that the information shows the economic reality of the transaction.